Fri, August 19, 2022

Oil prices: recovery or return to negative rates?

WibestBroker: Oil inventory report – miniature oil barrel on miniature globe.

There is an uncertainty in the crude oil market whether prices have already bottomed out or whether we see declines and even new negative rates. The truth is that there are forecasts for all tastes. Everything will depend on how the recovery evolves and the balance between supply and demand.

Some analysts believe that prices would have already touched the ground and that demand will gradually recover. According to them, the WTI could move between 50 and 60 dollars a barrel, and even above next year.

The US investment bank Goldman Sachs and also Pavel Molchanov, an energy analyst at Raymond James, claim that at some point, the world demand for oil would recover again. And while the world in an epic crisis, and as hard as it is to believe, the next step is a boom.

The coronavirus caused the first quarterly decline in oil consumption in a decade

Return to negative territory is still possible

Other analysts maintain that the oil market reflects the uncertainty associated with the coronavirus crisis. Forecasts are changing, as is the news of health improvement or the progressive start-up of the economies. 

They think that the return to negative territory is still possible. Reserves remain oversupplied, and demand is still low. The mere fact that it has happened once makes its repetition less likely. At the moment, there are no guarantees that the scenario of world oil consumption before the crisis, about 100 million BPD, will occur. Much of the market sees the crisis as more likely to continue over time, and it could keep oil prices at low levels. 

The Japanese financial giant Mizuho speculates that the barrel reaches close to -100 dollars. 

Neuberger, US private investment management firm, joins doubts and warns that one of the most significant risks to the oil market is a false restart of the economy. The restriction measures of the population cause a prop in gasoline consumption, less industrial activity, and paralysis of flights. Furthermore, once the pandemic is over, the global slowdown anticipates weak demand. 

The US, as the world’s leading consumer, is a determining factor in demand. However, there are concerns about the rise in unemployment and a summer season marked by reduced travel.

 

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