9 Oil Supply Scenarios That Could Drive Prices Higher (Or Lower)
Ellen Wald | Mar 26, 2020 06:10
Last week I addressed factors that could influence oil demand. In this article, I lay out positive and negative scenarios for oil supply.
The best case scenario is one in which oil supplies decrease and help push prices higher. The worst case scenario: supplies continue to stay high and oil prices remain low or fall even further.
5 Best Case Scenarios (Oil Supply Shrinks)/h2
Each positive oil supply scenario is independent of the others. Here's how each could play out:
1. Russia decides against increasing oil production. There are signs indicating this could happen. At a recent meeting with the Russian energy minister, Alexander Novak, most entreaties by President Trump not to flood the market with oil during a period of exceptionally low demand, Saudi Arabia is stubborn and doesn't deviate from its stated intentions.
Saudi Arabia stands by its earlier statements that it will increase supply in April to 12.3 million bpd, 12 million bpd coming from production. Further, Saudi Arabia could continue this high supply policy into the summer.
4. OPEC fails to reach a production agreement in June or December.
Bottom line /h3
As always, the most influential element of the oil market for those who trade financially, not trading physical oil, is sentiment. The key question to consider: do oil traders feel that supply is up or down?
A drop in shale production, even small, could have an outsized impact on the price because of how traders react. A change of policy by Saudi Arabia could do the same. Similarly, reports of obstinance from Saudi Arabia or of perseverance from U.S. shale could cause serious dips in the price in the coming weeks or months.
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