Mi vár az Olajra? (Angol hír)

Summary

• Oil prices dropped around 15% off local peak

• Impact of monetary and fiscal stimulus on the oil market is limited

• Rally halted on demand concerns

• History shows that prices should continue to rebound

Oil prices recovered strongly starting in April after OPEC+ decided to limit output and the US oil futures market regained balance. However, oil started to trade sideways in June. Oil enjoyed moderate price gains recently but remains low in historical terms. Brent managed to climb above $45 for just a moment and a large correction was triggered by rising demand concerns and recovering supply. How low could oil prices go?

Taking a look at the price performance over the past 5 years, price gains of $25-30 were often followed by $10-12 corrections. Those corrections ranged between 13 and 20% in percentage terms. Ongoing pullback has already shed $6-7 USD from a barrel price, or around 15% in percentage terms. Source: xStation5

End of recovery in demand?

Oil supply had to adjust to a significant drop in global demand. Nevertheless, as the global economy started to recover so did oil demand. However, expectations of this recovery could have been a bit overblown. Moreover, some economies still haven't fully reopened after the first lockdown and now a lot of flights are being cancelled once again. While most of the countries do not plan a second lockdown, we should not expect a major rebound in oil demand. The US Labour Day holiday marks an end of the holiday period that is often a period of elevated demand for oil and oil derivatives. Concerns over seasonal drop in demand could have been a trigger for the ongoing pullback.

Quantity of oil derivatives delivered to the US market dropped to the lowest level since early-June. On one hand, hurricane Laura could be seen as a reason. On the other hand, the amount of oil delivered to US refineries has been stabilizing for over a month already. Source: Bloomberg

Are we set to see negative prices again?

Drop of oil prices into negative territory in April was an unprecedented event and was associated with the US oil ETFs. This time the situation is strikingly different. ETFs stopped allocating all of their capital into front-month contracts and, in turn, risk of abnormal supply near rollover dates has been greatly reduced. As one can see on the chart below, current oil futures curve does not hint at risk of oil prices falling negative.

Oil futures curve (orange) looks strikingly different from the situation 5 months ago (green). Source: Bloomberg

What history tells us? What should we expect from the oil market?

Taking a look at how prices performed after previous oil and economic crises, the ongoing price rebound is much stronger than in the previous cases. On the other hand, the current situation is often compared to the one from the global financial crisis. Oil prices continued to gain for almost 3 years after 2008 with just minor correction moves. Having said that, one could expect demand recovery to occur sooner or later and it should push prices higher. In our opinion, the ongoing slump should not be too deep and rebound may occur as soon as selling pressure surfaces on the USD market.

Price rebound from this year's low was much stronger than in case of previous crises. On the other hand, one could expect continued gains in the long-term horizon. However, in such a scenario traders should also pay attention to the futures curve that shows strong contango at the moment. Source: Bloomberg, XTB