Oil prices set for modest recovery on OPEC+ cuts

Analysts expect global demand to contract by between about 6.5 million-8.7 million bpd this year, compared with last month’s prediction of 6.4 million-10 million bpd. (Shutterstock)
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Updated 01 July 2020

Oil prices set for modest recovery on OPEC+ cuts

  • Experts say a resurging virus could bring further restrictions and stifle demand

BENGALURU: Oil prices will consolidate at around $40 a barrel this year, with a recovery gaining steam in the fourth quarter and into 2021 on OPEC-led production cuts and as economies limp back from coronavirus lockdowns, a Reuters poll showed on Tuesday.

The survey of 45 analysts forecast benchmark Brent crude would average $40.41 a barrel in 2020, up from a forecast of $37.58 in a similar survey last month.

The global benchmark has averaged $42.10 so far this year. It was trading just below $42 a barrel on Tuesday, while West Texas Intermediate (WTI) crude was at $39.19.

The poll estimated the price of WTI would average $36.10 a barrel this year, up from a forecast of $32.78 in the May survey.

Of the 37 contributors who participated in both the May and June polls, 26 raised their 2020 Brent forecasts.

“The pace of this recovery will remain modest in the third quarter,” said Harry Tchilinguirian, head of commodity research at BNP Paribas.

But he said it would “accelerate in Q4 under the combined effect of voluntary output restraints by OPEC+ producers, market-driven production declines and a sequential recovery in demand with the reinstatement of economic activity reinforced by monetary and fiscal stimulus measures.”

Under a new agreement the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have been cutting output since May by a record 9.7 million barrels per day (bpd) to support prices and demand hit by the pandemic.

OPEC+ compliance with the cuts in May was 87 percent.

However, analysts warned that a global rise in COVID-19 cases, which is approaching the 10.5 million mark, could potentially spark further restrictions and slow any economic recovery, and in turn, demand.

Analysts expect global demand to contract by between about 6.5 million-8.7 million bpd this year, compared with last month’s prediction of 6.4 million-10 million bpd.

“End-2020 demand will likely fall well short of end-2019 levels given that people will take some time to return to their old habits after restrictions are lifted,” said UBS analyst Giovanni Staunovo.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.