Will the oil price forecast fall after Brent crude dips below $40?

Brent crude dipped below the $40 mark in the early hours of Friday morning despite many analysts predicting prices would average $45 a barrel this year and rise to $50 in 2021.

  • Brent crude dips below $40 a barrel over demand and oversupply concerns
  • US stockpiles rise as refineries restart after storms in the Gulf of Mexico forced shutdowns
  • OPEC+ output cuts necessary to stabilise oil markets

Brent crude fell below the psychological $40 mark in the early hours of Friday morning, with the commodity likely to trend lower in the coming weeks as investors grow concerned about weak demand and oversupply amid the coronavirus pandemic.

Brent crude is down four cents to trade at $40.02 at the time of publication, while the US West Texas Intermediate (WTI) is up four cents to $37.34 a barrel.

Both benchmarks are on course to record their second consecutive week of declines amid a myriad of challenges that have plunged oil markets into turmoil, with bearish traders beginning to book tankers to store crude and diesel as signs point to a slow global economic recovery.

US oil stockpiles rise as Louisiana and Texas oil fields come back online

Hurricane Laura blew through major US oil fields in Louisiana and Texas in late August, though the level of damage was far less serious than many had initially anticipated.

In fact, refiners and producers in the area like ExxonMobil and Valero Energy were able to get their respective operations in the region back online without much difficulty.

However, not all companies in the area were so lucky, with Citgo Petroleum’s Lake Charles plant in Louisiana sustaining significant damage that will see it out of operation for another four weeks approximately.

As a consequence, US oil inventories increased by two million barrels last week, compared with the 1.3 million barrel decrease that was expected, according to a Reuters poll.

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, with forecasters likely to lower their expectations.

How to trade commodities with IG

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