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Oil prices won't decline past $60-70/barrel — experts

The prices, most likely, will not fall below this level, since a new COVID-19 wave is unlikely to lead to another lockdown

MOSCOW, July 21. /TASS/. The price of Brent oil declined by more than 7.5% and fell below $68 per barrel a day after the OPEC+ ministerial meeting, at which the participating countries agreed on new parameters for the deal, said analysts interviewed by TASS on Wednesday.

However, the drop in quotations is connected not so much with the decisions of OPEC+ as with the collapse of financial markets amid fears due to the spread of the Delta strain of coronavirus.

At the same time, the price of oil will remain at the level of $60-70 per barrel and, most likely, will not fall below, since a new wave of morbidity is unlikely to lead to another lockdown. The price of Brent oil on Monday, July 19, went down by more than 7.5%, falling below $68 per barrel and losing almost $5 per barrel. On Tuesday, Brent failed to retrace significantly from the fall and is trading at $68-69 per barrel.

The OPEC+ decision to increase baseline production levels for some countries from May 2022 raises concerns about a surplus in the market, but it is impossible to say for sure, what exactly this factor triggered the fall in oil prices, said Vasily Tanurkov, director of the corporate ratings group at ACRA. "If you look at what basically happened on Monday in the financial markets, then almost everything collapsed: stock markets, Asian, European, almost all raw materials fell. This was more due to fears about a new wave of coronavirus: the incidence in the world is growing, and especially in Southeast Asia. Accordingly, this could lead to stagnation in global demand, including for oil," he said.

Viktor Kurilov, an analyst at the Norwegian consulting firm Rystad Energy, also sees a connection between the fall in oil prices, a correction in stock markets and an increase in the incidence of coronavirus. At the same time, quotes above $75 per barrel created risks for economic recovery, especially in developing countries, where demand is more sensitive to price levels, and vaccination of the population against COVID-19 is progressing more slowly than in Western Europe and the United States, Kurilov said. According to the expert, a moderate increase in production by 0.4 million bpd per month leaves OPEC+ opportunities to manage the market and will maintain oil prices at over $60 per barrel until the end of the year. "A balanced policy with maintaining the price level in the $60-70 range now looks like the best solution for OPEC+," he added.

Dmitry Marinchenko, senior director of the group for natural resources and commodities of the international rating agency Fitch, agrees that the price of oil will remain in the range of $60-70 per barrel for now. "This level is comfortable for most oil producers," he says. However, the expert admits that quotations may fall below $60 per barrel if Iranian oil returns to the market. "But OPEC+ will have the opportunity to correct the deal if market conditions require it. So far, the decision made seems to be optimal," Marinchenko said.

Tanurkov adheres to the same forecast for the price of Brent. In his opinion, the likelihood that oil will stay above $60 per barrel is very high, despite the spread of the Delta strain of the coronavirus. "The closure of economies and a new decline in demand are unlikely, because we saw that there was already a wave of coronavirus at the end of the year (autumn 2020 - winter 2021), and the economies did not close. Now the level of vaccination is already quite high in the world. This is especially true for European countries, the United States, China also has a fairly high level of vaccination. Therefore, there is no need to wait for the repetition of lockdowns, at least somewhat comparable to April - May 2020," he said.