• Add

Global Oil Markets: A Beacon Of Hope Or Cause For Concern?


Energy prices have been assigned responsibility for spiking inflation figures for most major economies as movement restrictions continue to be lifted and household energy demand begins to climb. As base effects continue to influence economic indicators, can we rely on the impressive numbers to serve as indicators of a recovery? Given the catastrophic effects the pandemic had on global oil markets, do the latest improvements suggest anything more than an inevitable return to baseline?

Amongst all the asset classes, the drop in consumption and complete halt in output in world economies affected global oil markets the most. A market once plagued by an excess in supply was being decimated by complete wipeout in demand. The year 2021 started with some positive news with Saudi Arabia; the world’s largest oil producer, committing to an output cut of 1 million barrels per day. Compliance has typically hit 70% with the Organization of The Petroleum Export Countries (OPEC) members as many struggle with profitability at lower production levels.

The following week, The Energy Information Administration (EIA) released positive short-term forecasts, albeit built on a series of economic assumptions. US growth figures registered a contraction of 3.5% in 2020 and a projection of 6.2% growth has been made for 2021. Total energy consumption is also expected to make a recovery at 5.4 million barrels/day for 2021. As such, price levels of around $55 per barrel are expected to be an average, stabilizing price for 2021.

The current moves in the commodity have been inspired by the new availability of a vaccine and by proxy an improvement in economic outlook, specifically, from a demand perspective as one of the largest oil purchasers; China makes a steady recovery (registering 2.3 % GDP to close out 2020). Last week, OPEC confirmed estimates that demand will rise by 5.95 million barrels per day (bpd) this year, or 6.6%, as significant uncertainties remain.

The question is: will we start to see an impact of this rising demand and levelling off of the supply glut in inventory numbers? As we move into the summer driving season, demand is likely to rise for the commodity and we may expect to see that shown in inventory drawdowns. Inventories have been trending lower, with the last significant build in new barrels in Mid-March. A forecast of approximately 1.3 million drawdown in inventories this week should boost oil prices and we may expect to see the USDCAD come under more pressure, as one of the world’s key petrocurrencies. This negative correlation is only going to deepen as the US Dollar continues to weaken.


Source: https://www.eia.gov/outlooks/steo/
!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}