The price of Texas intermediate oil (WTI) rebounded on Tuesday by 1.94%. It closed at $20.48 a barrel due to the approach of positions between Russia and the United States to stabilize energy markets.
At the end of live trading on Nymex, the New York Mercantile Exchange, WTI futures contracts for delivery in May totaled 39 cents on the previous session on Monday.
US President Donald Trump and his Russian counterpart President Vladimir Putin have had a telephone conversation. They have agreed that their energy officials drew up a plan to stabilize energy market prices, hit by low demand due to the COVID-19 crisis. It resulted in rising WTI prices.
Even though the prices have been favorable, analysts note that a more significant surplus will be given in April. It happens when OPEC countries and their allies begin to pump as much crude as they deem appropriate.
In the context of a total drop in demand due to quarantine and social distancing measures, excess supply will be even higher.
Since the outbreak of Coronavirus and the price war, oil has plummeted more than 60% so far this year.
Analysts anticipate a reduction in world oil production
IHS Markit predicts that global oil production will decrease. Or limit by up to 10 million barrels a day from April to June. This is as storage facilities fill up and demand plummets as a result of the COVID-19 pandemic. Production forecasts show a decline in all regions of the world. OPEC members, Russia, and the United States will suffer the most significant impact.
Oil demand in the second quarter is expected to decrease by 16.4 million barrels a day. The collapse of demand led to the closure of refineries from South Africa to Canada. This resulted in excess barrels on the market.
Similarly, Saudi Arabia and Russia have been increasing production in an attempt to gain market share, exacerbating the surplus.
However, China, the world’s largest consumer, is beginning to regain standard pace, and the blockades imposed by COVID-19 are ending.
Some analysts warn that a contango market is likely to be taking place. That would mean that producers are holding oil with the prospect of selling it at a higher price in the future when rates improve.
OPEC Countries Call for Peace Over a Price War
IHS Markit anticipates that the volume of production limits will be reduced in the middle of the year. The consultancy still expects the price of Brent futures to drop to around the US $ 10 per barrel in April. And some producers will experience negative rates, in which the buyer is paid to take the crude. Assuming that global demand recovers next year, Saudi Arabia and Russia will maintain or even increase production against the United States. By the fourth quarter of 2021, US production will fall to 8.8 million barrels a day. About two-thirds of what it was in the first quarter of this year. IHS also expects Saudi Arabia’s output to be higher.
