Oil rates set for deeper fall in 2020 as lockdowns ease

Oil prices set for deeper fall in 2020, even as lockdowns ease

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Oil prices are headed for further falls this year even as countries ease restrictions related to the coronavirus crisis, while output cuts by top producers will do little to fix a supply glut, a Reuters poll showed on Thursday.

The survey of 45 analysts forecast Brent crude would average $35.84 a barrel in 2020, 7.5% below the $38.76 consensus in a March survey. It has averaged $45 so far this year.

Brent and U.S. West Texas Intermediate crude both dived below $20 this year. Brent, the global benchmark, was trading around $25 on Thursday, more than 60% lower than at the end of 2019 as lockdowns have hammered demand for fuel.

"It feels like high noon on oil markets. Storage close to capacity limits and rapidly filling creates a blistering tension filled with fear about an overflowing market," said Norbert Ruecker, head of economics at Swiss bank Julius Baer.

U.S. WTI crude, which slipped below zero for the first time ever this month as traders scrambled to sell the May contract ahead of its expiry, was forecast to average $31.47 a barrel in 2020 in the latest poll, down from $35.29 in March.

But analysts were divided on whether prices would again fall to negative levels, which means those with oil must pay others to take it. Buyers are scarce in part because storage sites, such as Cushing in Oklahoma, have little space to store more.

"I cannot exclude that outcome, considering inventories at Cushing will likely be higher in one month's time, and finding space to store those barrels could be more challenging than now," said UBS analyst Giovanni Staunovo.

"On the other hand, we already see a decline in open interest in the June contract, as exchange-traded funds and commodity indices roll out and other investors try to avoid holding contracts as prices might tumble closer to expiry."

Analysts forecast demand would fall by about 20 million-25 million barrels per day (bpd) in the second quarter and 9.2 million-10.6 million bpd over 2020. The International Energy Agency forecast a 9.3 million bpd drop in 2020.

"The slow reopening of major economies, risks of reinfections and a possible worse return of COVID-19 in the winter will do no favours for crude demand," said OANDA senior market analyst Edward Moya.

 The Organization of Petroleum Exporting Countries (OPEC), Russia and other allied producers, a group known as OPEC+, agreed this month to cut their combined production by a record 9.7 million bpd, starting from May 1.

Most analysts agreed that compliance with the deal would be strong but might, at best, only put a floor under already weak prices rather than lift them.

Societe Generale's Florent Pele said the OPEC+ cuts might be "too little and simply too late."

"Inventories should continue to rise sharply in the next few months, and we'll continue to test 'tank tops'," Pele said.

But some analysts said the market slump was leading to broader shut-ins of production, including by higher cost U.S. shale producers, that could support prices in the second half.

"The big question: how long will it take before we see a comeback of the global economy - and oil demand?" LBBW analyst Frank Schallenberger said.

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