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Recent oil price hikes likely to be short-lived: analysts
By Lee Kyung-min
By Lee Kyung-min
Recent international oil price hikes are unlikely to gain further momentum in the near future due mostly to internal conflict among oil producers over production cuts and COVID-19 showing signs of sporadically flaring up, industry watchers said Monday.
Experts and financial institutions view crude oil prices rising to pre-pandemic level as unlikely for the time being given virus-triggered demand shock will not see an immediate recovery with the travel and airline industries reeling from a rapid deterioration of profits.
Brent Crude prices topped $40 (48,100) a barrel early June 3 (local time), the first time since two global oil powers ― Saudi Arabia and Russia ― began a war defined by production cuts following the breaking of a pact signed by Organization of the Petroleum Exporting Countries (OPEC) Plus, the group of primary oil producers, March 6.
The prices have since fluctuated, with Brent Crude hovering around $43 and Western Texas Intermediate (WTI) $40 as of Monday.
The sharp recovery is notable given the WTI fell into the negative territory in April, an unprecedented drop led by a massive supply overhang brought on by the pandemic.
“The price bounced back faster than we expected,” Korea Energy Economics Institute (KEEI) oil policy research team head Jung Jun-hwan said.
The state-run institute had forecast that the price would not jump to the current level before the third quarter of 2020, an assessment made before a decision on a production cut of 9.7 million barrels a day reached over the weekend.
The producers, reflecting a shared concern over possible price drops, reached an agreement, Saturday (local time) to a production cut of 9.7 million barrels a day through July.
This is a change from an earlier stance reiterated April 12 when OPEC Plus agreed to increase production in steps after June.
Despite the cut, the price will not recover to around $63, a level maintained before the pandemic, given recovery in oil demand will not come as hardest-hit industries will not be able to snap out of their deep economic slumps any time soon, he added.
“The price will not rise dramatically before the third quarter when demand recovery should begin to materialize. Our view is that the oil price will average at $40 in the first half as well as the latter half,” Jung said.