Oil prices to trade sideways in September, says Fitch Solutions

PETALING JAYA: Fitch Solutions has projected oil prices to remain at an average of US$44 (RM182.58) per barrel for 2020, before rising to an average of US$51 in 2021.

It noted that the Brent continues to trade sideways as it faces key points of resistance around US$45-45.20 per barrel.

“A sustained break to the upside will likely require an improvement in sentiment, which to-date has remained weak, despite a marked tightening in the physical crude market since the April price lows,” said the research arm of Fitch Ratings.

It opined that the market will continue to rebalance over the second half of the year and into next year, driven by continued drawdown of global inventories and further gains in prices.

Fitch Solutions noted that the rebalancing will be slow, reflecting a gradual recover on demand and return of shut-in wells and the unwinding of the Opec+ deal on the supply side.

“Moreover, the contango term structure in Brent has gradually deepened this month, typically an indication of market loosening and a bearish sign of sentiment and prices,” it said.

Fitch Solutions highlighted that the market management by Opec+ has been unprecedented, as the market saw 8.9 million barrels per day (bpd) – equivalent to around 9.0% of global supply – removed by Opec and Russia in May with a further 1.43 million bpd cleared in June.

Under the agreed schedule, cuts will decline from 9.7 million bpd to 7.7 million bpd on Aug 1.

On the whole it noted that these measures will be insufficient to prevent significant increases in the group’s output and that the core Gulf Cooperation Council (GCC) producers – Saudi Arabia, Kuwait and the United Arab Emirates – will be sensitive to price action and may limit the growth in their production, should market conditions dictate it.

Outside Opec+ particularly in the US, Fitch Solutions pointed out the supply shelved in Q2 due to weakened demand and Covid-19 related disruption are being brought back online, leading to a rise in production which may weigh on prices in the short run.

Although, its effect is expected to be temporary as the data signalled a year-on-year (y-o-y) decline in global crude, condensate and NGL supply in both 2020 and 2021.

In response to the price collapse, producers have aggressively pared back on spending and it forecasted a drop in global capex of 23% year on year in 2020.

Fitch Solutions elaborated that the initial rebound in demand was somewhat stronger than anticipated, as a result it has improved its forecast for global fuel demand from a 7.2% y-o-y decline to a 5.9% y-o-y drop in 2020.

source https://www.thesundaily.my/business/oil-prices-to-trade-sideways-in-september-says-fitch-solutions-KK3804194