Oil prices are enjoying some stability now, after pricing in fears of a new pandemic wave and the OPEC+ cuts agreement.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the state of oil prices:
"In the last two weeks oil traders priced in two big ‘ifs’. How supply will evolve and the fear of the pandemic’s second wave. The former lifted prices to above US$40, while the realisation of the later brought prices back to the more logical levels of between US$35 and US$40.
Now we are at a time of relative stability in the market. Unless a new shock in supply or demand knocks on the door, any daily changes in prices are likely to be marginal and a result of usual trading patterns.
Prices rose a bit today but this is not really a result of a significant market mover.
In an environment that has been depressed for so long, when there are no news, stability is good news. And today there is a positive vibe that : ‘ok, we have already priced in our fear of the second wave. That’s done. Now we need some positivity again’. And today’s modest earnings are the result of this mood.
The question is what happens next. Now that a return of the pandemic is a closer possibility, traders wonder if we are likely to see the same global lockdowns, if travel restrictions will be reinstated and industrial activity reduced. If the world treats a second Covid-19 wave like in the first half of the year, then we are in for a demand reduction that was not in the initial planning.
OPEC+ is aware of this though and the latest agreement to extend the deep production cuts is a positive signal for the market that there is a supply-reduction mechanism in place that will be triggered if needed. There is trust.
Eyes are on another coming meeting as well. Thursday’ production cut compliance committee meeting is not one to miss. It may not be taking any decision on production cuts, but it will be very indicative of the mood within OPEC+. Of the patience to sub-compliance in reducing production and also an indication of how words translate in reality. Don’t be surprised if prices move on news that some nations have not been cutting as much as required. There can be many takeaways from that meeting and it is worth monitoring.
The reaction of Russia and Saudi Arabia will be the closest indication of the atmosphere in the group. And although the panel itself is not immediately deciding any action, the countries behind may. What keeps the production cut agreement together is compliance, patience and trust among nations. And all of these are put to the test."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/16062020/oil-prices-enjoy-stability-but-eyes-on-opec-thursday-meeting/
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