JAKARTA (TheInsiderStories) – After depressed by fears of over oversupply and the devastating effects of the COVID-19 pandemic, the oil prices rebounded on Monday (05/11). West Texas Intermediate crude contract in June 2020 surged 0.58 percent to around US$24.28 a barrel and Brent Crude oil for July contract rose 0.91 percent to $29.09 per barrel.
The triggered was the Saudi Arabia announcement to cut of 1 million barrels per day (bpd) to help the global energy market. One of the largest oil producer is targeting to pump oil below 7.49 million bpd by June, below the oil cartel and its allies’ official target of 8.5 million bpd.
Earlier, its neighboring country, Uni Arab Emirates announced also has plans to cut its productions by another 100,000 bpd starting June. Before, minister of energy and industry, Suhail bin Mohammed Faraj Faris Al Mazrouei admitted, earlier his country raises its productions after the Oil Producers Export Countries and allies (OPEC+) member increased its production to more than 4 million bpd in April.
Another oil producer, Kuwait, also announced that it would cut its oil production even more than the OPEC and the allies by an additional 80,000 bpd in June. As reported, oil prices hit the bottom level for the first time in 1999 in April, as the COVID-19 hits the demand.
Even the OPEC+ agreement a record deal to slash global output by about 10 percent not helped the market confidence on the future oil market. Saudi Aramco announcement to provide its customers with 8.5 million bpd starting May 1st also not give an energy to the market.
Recently, United States (US)’ Energy Information Administration (EIA) has lowered its 2020 forecast for WTI price to $29.34 per barrel, down 23 percent compared March forecast. It also cut its Brent crude price forecast by nearly 24 percent to $33.04 for 2020.
This year, EIA expects American crude output of 11.76 million bpd, dropped 9.5 percent from the previous view. It also forecast for 2021 the production down nearly 13 percent at 11.03 million bpd.
EIA assumes that the sharp reductions in global crude oil prices, which occurred during March 2020 as a result of COVID-19, will persist through the second quarter before prices begin gradually increasing through the end of the forecast. Its expects that considerable decreases in liquid fuel consumption will result from containment measures and economic disruptions related to the virus, which will affect US refinery activity and, consequently, demand for crude oil.
However, crude oil supply will increase in the short term as a result of agreed production cuts among OPEC+ that were suspended. EIA rated that these two factors will keep global crude oil prices at multi-year low averages through the first half of 2020.
Only gradual increases in crude oil prices are expected through all of 2020 as these factors persist, which could lead to record levels of expected global oil inventory builds in the first half of 2020.
The agency expects that COVID-19 will drive sharp reductions in crude oil prices and US liquid fuels demand during the second quarter of 2020, which will significantly reduce prices for gasoline and diesel fuel during the same period. Significant reductions in personal travel, both for normal commuting and vacation travel typical for the summer driving season, will decrease gasoline prices more dramatically than diesel fuel prices.
It said, the shock to gasoline demand and EIA’ corresponding expectation of near-term oversupply has been reflected in forecast US refinery wholesale margins. In late March 2020, refinery wholesale margins for gasoline fell to near-zero levels in some regions, while diesel fuel margins remained relatively strong.
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