Crude oil has seen its first weekly decline in almost two months. Earlier, the price of crude oil rebounded in the hope of revival in demand and a strong reduction in production from OPEC +, but also from other countries such as the USA, which limited production due to low oil prices. However, it turns out that the return of the price to the $ 40.00 per barrel level caused caused a fluctuation in supply. Looking at the charts, it can be seen that the oil price remained below $ 40.00 for a extended period of time only at the turn of 2015 and 2016. This means that this level is treated as a profitability limit for many economies. Therefore, when the price reached this level, a very slow recovery of supply began. In the United States, there is talk of stimulating the shale sector, Libya is able to quickly restore production at 300-400 thousand barrels per day, while the fulfillment of the OPEC + agreement is questioned, mainly by countries such as Iraq or Nigeria, which at current price levels may want to take advantage of the situation and simply produce more.
Demand has actually rebounded from the local April bottom, but is still far from normal. The oversupply on the market is currently estimated at 5-10 million barrels per day. Moreover, it seems that we now have something in the form of the second wave of coronavirus infection in the world. This may delay the re-opening of economies and, above all, negatively affect the entire aviation sector. This may limit the expected rebound in demand. Goldman Sachs indicates that the price may drop to $35.00 per barrel. The level around 30-35 USD per barrel should be seen as a zone where China can make another significant purchases and producers will not think again about resuming recently stopped production. However, at the moment we are dealing only with a short-term correction, which should reach the aforementioned level of $30.00-35.00 per barrel (both benchmarks). Of course, the moderate rebound scenario in which the price rises to $ 40.00-50.00 per barrel by the end of the year requires continuing rebound in demand. It is also worth remembering that in July additional cuts from Saudi Arabia, Kuwait and the UAE will not be continued, and from August OPEC's production cut target will be 7.7 million barrels per day.
OPEC + may want to further boost oil prices, but it does not have to remember the need for demand response. On the other hand, higher prices will also provoke supply to re-open. Source: xStation5
