Oil Prices Likely to Stay Down for the Rest of the Year

The US election seems to have given a bump to almost everything from stocks to gold and bitcoin…

…it’s not so much the case for oil prices though.

While the West Texas Intermediate (WTI) is up 2.85% today, it’s still trending well below US$40 a barrel. At time of writing, WTI is trading at US$38.12, down 2.5% from before the election.

Sure doesn’t look like oil prices will be increasing for a while

For one, virus cases are starting to rise once again in Europe, with many countries imposing curfews and lockdowns. In the US too, cases are increasing as they head into winter.

All this means less movement. No driving to work or travel. Oil demand could slump again much like it did in April when oil prices collapsed.

At the same time, there’s some more supply coming onto the market. Libya has restarted oil production after an internal war affected production. With a truce in place, Libya’s National Oil Corporation expects their crude output to double to one million barrels per day in the next few weeks.

OPEC and Russia had planned to ease current production cuts from January, but seeing how things are going it may not be the best of plans if they want to keep oil prices from collapsing.

Instead of easing cuts they may very well extend them.

From Reuters:

Earlier on Tuesday, Algeria, holder of the rotating OPEC presidency, backed an extension of existing supply cuts.

Algerian Energy Minister Abdelmadjid Attar said keeping current cuts into the first half of 2021 could be considered at the next OPEC+ meetings, according to state news agency APS. 

The second wave of COVID-19 meant the oil market faced a “very dangerous” situation, he said.

 

There’s still too much oil around

We’ll know more at the end of the month, when OPEC+ is set to meet.

But keep an eye out on China’s oil demand too; they are the largest oil importer in the world. China has been stocking up on oil, taking advantage of cheap oil prices, so we could see demand slow there too.

But for now, with lockdowns in Europe, more oil around and a push towards renewables, don’t expect oil prices to rebound any time soon.

It’s why we think there are better investments out there, especially if you are looking for dividend plays.

Check out editor Greg Canavan’s free report: ‘Five Dividend Stocks Set to Thrive in the Post-Pandemic Era’.

You can access it here.

Best,

Selva Freigedo


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Port Phillip Publishing’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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