Why Oil Prices Could Flatten (Or Even Slump) This Fall
Ellen Wald | Aug 20, 2020 05:07
Evidence is mounting that oil prices may decline in the coming months. Whereas the common perception since March has been that we would see an uninterrupted—if slow—recovery, we are realizing that this may not be the case. Below is the case for why oil prices could fall:
Positive Demand Numbers, Little Impact Recently
Over the last couple of months, prices have remained fairly stable. For the most part, Brent has hovered a little below $46 per barrel, and WTI has been steady between $40 and $43 per barrel.
Positive news about demand has failed to raise prices over these ranges. Although oil stocks are still well above the five-year average, production and consumption are not as wildly out of sync as they were back in April and May, and yet oil prices remain stuck.
The good news for oil prices has been that over the past four weeks, the EIA has reported declines in the amount of stored oil. Still, oil prices have not risen and each week, these draws are becoming smaller.
U.S. oil stores three parts :
- Overcoming the virus and the government responses
- Overcoming the population’s fears, and
- Overcoming the residual economic damage.
The oil supply from OPEC and Russia is set to remain steady or increase slightly. Unless the U.S. sees a major uptick in industrial and economic activity or U.S. production contracts further, it is likely that oil demand will flatten or even decline as we head into the autumn and winter. In this case, prices seem poised to fall as we enter the end of the third quarter and head into the fourth quarter.
Another event that could put positive pressure on oil prices would be a victory—by former Vice President Joe Biden in the U.S. presidential election. Over the last few years, the U.S. has typically been the world’s largest producer of oil, but many of Biden’s political allies would like to see marked decreases in U.S. production, particularly from shale oil and offshore oil. A new, Democrat energy policy would raise the possibility of significantly less production.
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