KUALA LUMPUR: OCBC Treasury Research estimates Brent crude oil to finish 2020 close to US$50 a barrel following the extended supply cuts by Opec+ by a month to July 2020.
The research house said on Tuesday the current output reduction of 9.7 million barrels per day (mbpd) was expected to expire this month; the months of July to December would only see a production reduction of 7.7mbpd.
“We now estimate that the crude oil market could return to a supply deficit by October 2020. This is one month earlier than if OPEC+ had stuck with its original schedule.
“The crude oil market is expected to experience a sharp supply deficit in late 4Q, when demand may reach within 3% of pre-Covid 19 levels but Opec+ still keeps to its original supply schedule. The stress may prove short-lived when 2mbpd of supply returns from January 2021, ” it said.
However, OCBC Treasury Research said Libya remains a key risk to its supply assumptions. The African country has seen its production fall 1.7mbpd to almost nothing over the ensuing civil war.
Should this 1.7mbpd return to pipelines, the oil market would easily flip back into a supply surplus.
Other key risks to OCBC Treasury Research's assumption include less than expected oil demand due to second wave of Covid-19 contagions globally; a resumption of the US-China trade war dampening demand for energy; or non-compliance by Opec+ members.
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