FX.co ★ Oil prices unlikely to rise even after COVID-19 defeated

Many experts believe that oil prices may remain low even after the end of the COVID-19 pandemic. They warn that the current stability in the oil market may be tipped at any moment.

The OPEC+ deal aimed at cutting the oil output came into effect on May 1, 2020. However, not all participants were pleased with it. For example, Mohammed Arkab, Algeria’s Minister of Energy and President of the OPEC Conference, called on cartel members to increase the oil production. Such a view is based on the fact that demand for crude oil has not reached the bottom yet. As a result, there is a room for maneuver.

According to some forecasts, the current month will be very taxing for the oil market. Economists at the International Energy Agency (IEA) believe that oil oversupply will reach 23 million barrels per day in the second quarter of 2020. Analysts fear that if oil prices spike to $40 per barrel, most independent oil producers will begin to increase production. If this scenario turns to be true, the oil market will be again swept by high volatility.

Presently, the commodity market has practically ignored the OPEC+ deal. Experts pinpoint that the deal is expected to show its positive effect by the end of May unless some negative events step in. Besides, the oil market will recover more quickly if countries around the world remove quarantine restrictions.

According to optimistic forecasts, oil prices will reach $40 per barrel by the end of 2020. However, experts urge investors to stay on guard as the situation may still change for the worse. In case of any negative scenarios, the oil market will face the same difficulties when the results of OPEC+ deal were undermined due to the growth of oil production in other countries.

Hence, after the end of the pandemic, the oil market should brace for a long recovery. In addition, oil prices may crush again as some OPEC members may ignore the terms of the agreement. Nevertheless, the easing of the lockdown restrictions and stabilization of the global economy will remain the main factors for the quick recovery of the oil market.