The past year was marked by several stages in the decline of the oil industry. This was primarily due to a pandemic, a lockdown, as well as overproduction with reduced demand. Spring 2020 was a critical month for oil prices – they fell by half, reaching $ 30 per barrel. But lockdown and tight restrictions are a thing of the past, and vaccinations are on the rise worldwide. This contributes to the growth in demand for fuel, which allowed the benchmark quotes to almost completely win back the decline due to the pandemic.
According to the IEA’s forecast, which was announced back in March this year, demand in 2021 could grow to 96.5 million barrels per day, and last year’s losses will be compensated for by 60%.
According to experts, the rapid growth of oil quotations confirms the recovery of demand in the future against the backdrop of economic recovery.
Oil may not be enough
According to experts, at the moment the market has reached a certain balance between supply and demand. OPEC + decided to gradually increase oil production, which takes into account seasonal growth in demand, as well as the impact on the global situation of the coronavirus epidemic in India. There are fears that demand will recover faster than long-term supplies, which is associated with a decrease in investment in oil production from international companies due to environmental problems. At the moment, oil is returning to the market, which was withdrawn earlier as a result of a decrease in demand. This raises the question: do the companies have free capacities?
In addition, the fuel reserves that were accumulated during the pandemic were practically exhausted by the end of April. No more than 20% of such “surpluses” remain on the balance sheet of developed countries. In July last year, the volume of reserves was 249 million barrels, and in February this figure dropped to 57 million barrels, according to the International Energy Agency (IEA). This situation has become, to a certain extent, a consequence of the decisions of OPEC +.
The oil market can be supported by motorists and hurricanes
The hurricane season will soon begin in the Gulf of Mexico, which could support the oil market. About 40% of the US oil production facilities are located on the coast of the Gulf. Interruptions in their work can provoke a temporary shortage in the US market for petroleum products.
The current growth was fueled by a statement from the US National Center for Hurricane Watching, which said that with a 60% probability, this natural phenomenon should be expected to form over the western part of the Gulf. This is an important statement given the number of oil companies located in the region: 45% refineries and 51% natural gas processing.
In addition, the benchmark was influenced by the announcement that US motorists will refuel their cars more than once this week, given the upcoming Memorial Day weekend, which will last three days.
Oil sellers await resumption of talks on nuclear deal
According to an earlier statement by the speaker of the Iranian parliament, the three months during which the agreement between Tehran and the UN implied oversight of the latter have expired. Now images of several nuclear facilities in Iran are not subject to control.
Last week, European diplomats warned that by refusing to renew the agreement, Tehran could jeopardize talks between Iran and the United States on the 2015 nuclear deal. They are expected to resume soon in Vienna.
According to Bloomberg, Iran would prefer to renew the agreement and buy time to start reviving the JCPOA.
All this time, the Biden administration turned a blind eye to how Iran was shipping “left-handed” oil, and was in no hurry to apply the sanctions imposed by Trump. At this point, it is important for this Islamic Republic that international banking arrangements are fully restored, thus removing obstacles to commodity transactions.
Analysts believe that additional Iranian barrels will negatively affect the market, given the remaining threats.
OPEC + meeting
In early June, the oil cartel will hold its next meeting. According to previously announced plans, OPEC plans to gradually increase production. Just at the upcoming meeting, the cartel will assess the situation on the market and decide whether or not to take this step.
Given the improving economic situation in the world and growing demand, it is possible that OPEC + will decide to adjust the current agreements.
It is unlikely that oil producers will go to cut production volumes, but growth is quite possible. Additional barrels of oil on the market should “cool” it, and cause a decline in prices.
Dollar and oil
Oil bulls support the general market optimism. Investors’ close attention is focused on inflation indicators in order to determine whether prices will rise temporarily or in the long term. The most popular are the securities of companies producing oil and materials, as they can pass on higher costs to consumers. Securities of companies in the IT sector are left behind.
If the Fed is convincing enough in its statements regarding a long-term stimulus policy, the euphoria in the market will continue. In this case, the US dollar rate will update its minimum values for several months, which will support the commodity quotes.
To start buying oil, it is enough to register on the website of a reliable broker. For example, AMarkets is a member of The Financial Commission. Remember that oil is a risky asset and must be traded with caution.