COVIID-19 has affected all sectors of the economy, including fuel. This year, global oil demand shrunk for the first time since the global recession of 2009. Demand was expected to fall by more than 9 million barrels per day (mbd) year-on-year in 2020. The market activity we saw this spring was a result of supply and demand issues, coupled with low consumer confidence. However, the tide turned in early December, when global Brent crude benchmark rose above $50 for the first time in nine months, with the possibility of several vaccines on the horizon. How might it impact your portfolio? Here are some thoughts:
First and foremost, it’s important to understand some context. Global energy market demand for oil, natural gas, and coal waned earlier this year with the onset of the pandemic. The industry experienced a sharp decline due to declines in domestic and international travel. Not to mention lockdowns and quarantines in many countries have all shrunk the demand for oil. Analysts also point to supply-side disruptions to production and trade, and shifts in healthcare spending as contributing factors.
Presently, amidst the global sense of optimism, experts are confident that high inventory levels and surplus production capacity will limit increases in oil prices through much of next year. However, no one has a crystal ball. Analysts say the pace and speed of recovery from the strain of the coronavirus will determine the trajectory of oil prices. Until a safe and effective vaccine is available en masse, there are more questions than answers.
“Once rolled out, the vaccine should ensure a recovery in oil demand back towards trend. But first inventory levels and spare capacity held by OPEC+ need to be reduced and this may take us towards the second half of 2021 before a meaningful oil price recovery can occur,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in November.
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