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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Trading Giant Sees Oil Price Recovery Later This Year

Commodity trading major Vitol said it expected oil prices to recover later this year once the effect of the coronavirus epidemic wanes, Bloomberg reported, citing the company’s chief executive.

Before that, however, the oil market will suffer a 200-million-barrel negative impact on demand during the first quarter, Russell Hardy said, with loss of demand in China at 4 million bpd at the moment, on the back of travel bans and lower economic activity.

While this is undoubtedly negative for prices, Vitol’s CEO also said there is a positive effect to counter the impact of the coronavirus, and this is lower production in Libya and Venezuela, along with OPEC plans to deepen their production cuts.

“All of those factors are going to help re-balance the 200 million barrels, which will leave the market in a better position for the second half of the year,” Hardy told Bloomberg in an interview. “There’s an OPEC meeting to come in a couple of weeks time and the market’s anticipating some kind of supply response from OPEC.”

OPEC officials earlier this month recommended additional cuts of 600,000 bpd to prop up oil prices, but Russia has been reluctant to agree, asking for more time to consult on the recommendation. Related: Indonesia’s Oil Output Expected To Fall In 2020

This opposition is hardly surprising: Russia has consistently budgeted for lower oil prices than the actual ones since the 2014 price collapse, and as a result is much more resilient to price drops than Saudi Arabia. It has also signaled repeatedly it is making a compromise with its oil industry in supporting the cuts as they are.

The next meeting of OPEC and its partners in the cuts is scheduled for early March and if history is any indication, Moscow will agree to an extension or deepening of the cuts, but it may not stick to them.

Meanwhile, the EIA, the IEA, and OPEC itself have revised down their global oil demand outlooks, with the EIA the most pessimistic, expecting demand to take a hit of 378,000 bpd for this year. OPEC revised down its outlook by 230,000 bpd earlier this month, while the IEA’s downward revision was for 365,000 bpd.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on February 21 2020 said:
    Oil prices are already recovering having recouped some of their losses since last week. Moreover, the coronavirus outbreak will soon be over given the very strict measures which China has implemented since the onset of the outbreak.

    However, until China is out of quarantine and open for business with its factories churning goods for the world, no one and that includes Vitol’s CEO can accurately quantify the eventual impact of the outbreak on global demand and China’s and also on prices. Therefore, any price or demand forecasts are no more than guesswork.

    Moreover, the global oil market has already factored in the loss of Libya’s oil production since the civil war started in 2011 and a decline in Venezuela’s oil production since the imposition of US sanctions. So Libya and Venezuela will virtually have no impact on the market and prices.

    Whether global oil demand growth is slashed by 378,000 barrels a day (b/d) by the US Energy Information Administration (EIA) or 365,000 b/d by the International Energy Agency (IEA), or 230,000 b/d by OPEC, global demand is still projected to range from 102.05 million barrels a day (mbd) to 102.20 mbd in 2020 compared with 101.23 mbd in 2019 despite the coronavirus outbreak.

    Once the outbreak is declared under control, global oil demand and prices will recoup all their recent losses and more. Moreover, China’s economy will most probably behave like someone who has been starved of food. Its appetite for crude oil will be rapacious with oil imports surging to the levels it hit in the last quarter of 2019, namely 11.76 mbd.

    And while OPEC+ may agree in its March meeting to extend the existing production cuts until the end of the second quarter or even until the end of the year, Russia doesn’t see any benefit from deepening the cuts while the outbreak is still raging. After all, Russia’s economy can live with an oil price of $40 a barrel or less compared with a price far higher than $85 for Saudi Arabia and almost all OPEC members.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Jessie Phillips on February 21 2020 said:
    Oil needs to go down to the actual price instead of being "propped up" the economy is still in its recovery stage and higher oil and gas prices will only weaken the economy

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