Research Department of Intesa Sanpaolo: Crude oil prices could rise over
Crude oil prices underwent a rapid correction due to the sudden and unexpected contraction of Chinese demand amid extraordinary measures to limit the spread of the new 2019-nCov virus, more commonly known as Corona virus. A report by the Research Department of Intesa Sanpaolo highlights that, if the epidemic peak takes place in mid-February, oil prices could recover ground over the coming months. Intesa Sanpaolo forecasts for the second half of 2020 are higher than consensus estimates, amid a cautious optimism prevailing on financial markets, also thanks to a truce in trade tensions between the US and China.
The report shows that fundamentals are currently negative on physical markets. Despite the cuts in the OPEC + countries, the negative production record in Iran and Venezuela and the internal risks of Libya, Nigeria and Iraq, the world market should record a slight surplus this year. However, given the scale of the recent market correction, crude prices are now supported both by OPEC's commitment to control its offer in order to keep the markets in balance and by significant geopolitical risks, including the threat of new American sanctions against Russian producers.
In the long run, a widespread drop in commodity prices is expected, driven by expectations of lower demand growth, especially in China.
The report further highlights that both in the short and long term, oil prices will remain vulnerable to speculative flows. The main downside risk is that crude oil is no longer perceived as an attractive asset to be held in financial portfolios due to the negative returns that could be generated when the contracts are rolled-over once per month.
Last updated 11 February 2020 at 12:37:47
