- Surging Oil Demand
- Oil Production Cuts Impact
- Oil full year Outlook
Oil prices are under immense pressure, barely days after major producers agreed to extend production cuts to curtail glut in supply. Prices were down by as much as 0.3% after Brent Crude futures rallied by 0.2% in early Tuesday trading session.
Oil Prices under pressure
Oil prices face an uphill task to stay above the $40 a barrel level as the output cut news appears to be fully priced in. Production cuts have helped push oil past the $40 a barrel level, helping curtail a glut in supply that had plunged prices to record levels.
While the short term outlook looks bullish, analysts at Goldman Sachs and UBS have already fired warning shots reiterating that prices could plunge back to the sub $30 a barrel level.
For how long prices remain above the $40 a barrel level is dependent on the rate at which demand picks up, with the opening of economies post COVID-19. China has so far been one of the biggest drivers of prices on oil importation spiking with the importation of 47.97 million tons in May.
The opening of the U.S economy, three months after the Coronavirus pandemic erupted, is another development likely to continue supporting oil prices going forward. Immediate data indicate that U.S Crude inventories dropped by as much as 1.5 million barrels in the week ended June 5, alluding to strong demand.
The longer the Organization of the Petroleum Exporting Countries and its allies adhere to the 9.7 million barrels a day cut will also help support prices above the $40 a barrel level. Reports that Saudi Arabia Kuwait and the UAE will not extend an additional 1.18 million bpd in cuts past July could weigh in on prices going forward.
According to analysts at Goldman Sachs, wrangles over production cuts and a slow uptick in demand threaten to push prices to lows of $35 a barrel. Analysts at UBS, on the other hand, expect oil prices to end at $31 a barrel by the end of the year.