Oil price outlook set to weaken, OPEC+ cuts crucial to lifting market

Brent crude rebounded slightly on Wednesday, with the price of oil managing to avoid dropping below the psychological $40 benchmark. But hurdles remain that threaten to push the commodity lower in the near-term.

  • Oil prices rebound despite significant pressure
  • Brent crude manages to stay above psychological $40 benchmark
  • Surge in coronavirus cases threatens tighter restrictions that could weigh on oil demand
  • OPEC+ production cuts crucial in stabilising oil prices

Brent Crude rebounded slightly on Wednesday after suffering significant losses in the previous session, with the benchmark managing to stay above the psychological $40 mark.

But with rising coronavirus cases threatening tighter restrictions being imposed by governments to curb the spread of the virus, oil prices face considerable pressure in the near-term that could see the commodity trend lower.

Brent crude is trading $1.19 (2.99%) higher at $40.97 at the time of publication, while the US West Texas Intermediate (WTI) is up $1.45 (3.94%) to $38.21 a barrel.

OPEC+ production cuts essential to stabilise oil prices

Even though oil prices have rebounded, the myriad of macroeconomic headwinds is applying significant downward pressure on the commodity, with OPEC+ production cuts essential to help stabilise the market.

However, there are valid concerns about OPEC+ members complying with production cuts alongside rising supply from oil producing nations in August that has contributed to the recent decline in the price of oil.

Many analysts had forecast Brent crude to average $45 a barrel throughout 2020, with that figure rising to an average of $50 in 2021.

But with global economies struggling to reopen amid the Covid-19 pandemic and markets taking longer to recover than expected, oil prices have begun to fall, applying additional pressure on companies operating in the sector.

Positive EIA data not enough to lift sentiment

Last week, the US Energy Information Administration (EIA) reported positive oil data, which showed a decline in US oil supplies, with inventories falling by 9.4 million barrels to a total of 498.4 million barrels.

‘Following the increases seen during May, monthly average crude oil prices continued to move upwards in June,’ the EIA said in its monthly marketing report. ‘The average domestic crude oil first purchase price rose $15.44 (85.4%) to $33.53 per barrel.’

However, even positive US supply data is unlikely to be enough to support oil prices from declining over the near-term as investors grow increasingly concerned about oversupply and demand weakening further amid the Covid-19 outbreak.

Major investment firm dumps Big Oil stocks over climate policy

The Norwegian life insurance company Storebrand ASA has divested from US oil and gas majors Exxon Mobil and Chevron after upgrading its climate policy, with the financial services firm wishing to end its investment in coal and accelerate the transition to renewables.

Storebrand’s tightening of its climate policy will contribute to companies around the world contributing to reducing emissions and adapting operations to help the environment.

‘We aim to be a leading provider of sustainable investment solutions,’ Jan Erik Saugestad, executive vice president at Storebrand. ‘Climate risk is one of the biggest challenges facing the world and investors.’

‘Therefore, investors must move large amounts of capital to companies that deliver solutions to the climate crisis - and away from companies that do not take climate risk seriously,’ he added.

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