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.

How to trade commodities with IG

Looking to trade Brent crude and other stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs and spread bets in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Oil – Brent Crude’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

React to volatility on commodity markets

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

See opportunity on a commodity?

Try a risk-free trade in your demo account, and see whether you’re onto something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a commodity?

Don’t miss your chance. Upgrade to a live account to take advantage.

  • Analyse and deal seamlessly on fast, intuitive charts
  • Get spreads from just 0.3 points on Spot Gold
  • See and react to breaking news in-platform

See opportunity on a commodity?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Sell
Buy
-
-
-
-
-
-
-
-
-
-
Sell
Buy
Sell
Buy
-
-
China 300
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.


For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.