When And How Will Oil Prices Recover?

23 May, 2020

Non-OPEC Production during the 1998 Oil Price Collapse. The author from EIA data.

The global oil surplus is about both the demand paralyzation and the price war. Obviously, without some resolution of the struggle between Russia and Saudi Arabia, prices will remain depressed, conceivably about $30, for a lengthy period, months or years.

The question remains: What is the Russian goal? If it is merely to punish the U.S. for its economic sanctions, then expect the price war to last for months, but recovery when the U.S. makes some peace offering (reduced sanctions) or, worst case, after the November election.

If Russia wants to force the Saudis and other OPEC members to bear the entire burden of at least the covid19-related price reduction, then there is a room for “face saving solution”. This could happen at any time, certainly the June OPEC meeting being target of opportunity.

Finally, if Russia was concerned that oil prices were unsustainably high, the implication would be that an agreement would be difficult to reach. And even on reaching an agreement, prices would almost certainly remain lower than pre-price war levels, possibly below $50 for years.

Source: Forbes

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