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Oil markets enter an unprecedented era

 In Newsletter

Issue No. 125

 

Assets Covered: ICE WTI Crude Oil Futures , NYH RBOB Gasoline

 

After a record-breaking plunge in demand and prices over the last few months, some say we are nearing the bottom of this massive fallout in oil markets. The question is will the industry be able to pull itself out of this trough or are we entering a new era?

 

Oil major Shell recently announced in its earning call it is planning for the worst case scenario, cutting shareholder dividends for the first time in over 70 years. At the same time, in recent days oil markets have been rallying, jumping almost 20 percent. Unfortunately, these modest gains may be hiding more systemic problems facing the industry.

 

 

Supply (Demand) Problem

 

Continued production through Q1 and early Q2 created an over supply in the market as governments were shutting their economies down due to Covid-19. Even though OPEC announced cuts to production mid-April, this was too little, too late to counteract the massive fall in global demand.

 

In our interview with Vandana Hari of Vanda Insights, she believes this is going to cause a fundamental shift in the industry.

 

“The pain is going to be felt all the way down to refining and retail. It’s also going to be spread across geographies. It’s going to be spread across the size and nature of companies, whether you are an oil major or an independent or an NOC,” Vandana said.

 

 

Two Ways Out

 

We’re already starting to see the effects of the over supply drastically impact oil companies. Layoffs and bankruptcies have started and we will likely see a continuation of this through 2020, according to our recent talk with renowned oil trader, Tracy Shuchart.

 

“So what is going to happen? There are two things. We’re going to fill storage… There’s nowhere to put it, so they have to do forced shut-ins or we’re going to get a scenario where people decide to voluntarily cut back,” Shuchart said.

 

 

2020 Oil Market Outlook

 

We’ve included our ICE WTI Crude Oil Futures and NYH RBOB Gasoline forecasts below. One item to note is that we expect to see volatility through the summer. The forecasts below are what we expect for the average end of day closing price for the month.

 

For May, we will see ICE WTI Crude Oil Futures average out at about $24 per barrel, and for June and July, $22 and $25 respectively.

 

WTI forecast 2020

ICE WTI Crude Oil Futures (T1) forecast through July 2020
This chart was generated using CI Futures. Book a demo to see it in action.

 

We see a similar trajectory in the data with NYH RBOB Gasoline. In May, we will see prices average out to $0.87 per barrel, and for June and July, $0.80 and $0.87 respectively.

 

nyh rbob forecast 2020

NYH RBOB Gasoline (N1) forecast through July 2020
This chart was generated using CI Futures. Book a demo to see it in action.

 

Starting late Q3 we expect to see prices balance out and a price rise.

 

Interested to see our late Q3, Q4 and 2021 outlook for ICE WTI Crude Oil Futures and NYH RBOB or any of the other 700+ assets that we cover? Schedule a demo with us today.

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