Oil prices will mount a recovery

published 13 November 2020

Hopes of a vaccine lifted oil markets earlier this week, with Brent crude jumping to $43 a barrel. Bulls were also cheered by the Saudi energy minister, who suggested that the so-called Opec+ output deal could be in for a “tweak”. The current deal sees major oil producers such as Russia and Saudi Arabia hold output 7.7 million barrels per day (mbpd) below 2018 levels. That figure is due to fall to 5.7mbpd in January, but the latest wave of lockdowns will hit global demand, prompting speculation that the output curbs could be extended deep into next year. Global crude oil demand was roughly 100mbpd last year, but the pandemic has reduced the world’s appetite for the fuel by about 10%.

The oil outlook remains shaky, says Julian Lee on Bloomberg. The demand slump extends even to places that have dealt with the virus well: Japanese imports from the main Persian Gulf producers are still down by half compared with pre-pandemic levels. On the supply side, US output is proving robust. America is China’s third biggest oil-supplier after Russia and Saudi Arabia. The second wave of lockdowns will hold oil markets “in check” over the coming months, says Stephen Innes of Axi. But the prospect of a vaccine is a “game-changer for the oil complex”. With Opec+ signalling that it is ready to do “whatever it takes” to support prices, oil prices have two “planks” to rest on while they wait out the winter.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.