Oil Prices: At The Mercy Of Geopolitical Tensions

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OPEC: Production Of Crude In Nigeria Has Dropped To 1.417mbpd In February
OPEC: Production Of Crude In Nigeria Has Dropped To 1.417mbpd In February

In 2019, crude oil prices responded to multiple factors affecting supply and demand. This was as swings in crude oil inventories, OPEC+ production cuts, escalating trade tensions and a synchronized slowdown had to push and pull effects on the global commodity. As a result, Brent crude oil prices averaged $64.2/b in 2019, down 10.5% y/y.

Barely three days into 2020, geopolitics took the centre stage, as tensions between U.S. and Iran escalated, following a U.S. airstrike which killed an Iranian General. With the fear of oil assets being caught in the web of inter-country conflict, possible attacks on Middle Eastern U.S. allies or disruption at the Strait of Hormuz, crude prices climbed above $70.0/b levels before settling at $67.8/b. While tensions in the Middle East serve as a short-term positive shock, the recent OPEC+ production cuts give us reasons to believe that oil prices will average or hover around $60-$65/b in 2020 (with a greater probability lying in the mid-value of the band).

Oil Prices: At The Mercy Of Geopolitical Tensions - Brand Spur

On the demand side, decelerating growth in key demand markets (China & India) remains a key cause for concern. Also, with higher oil prices, shale producers are encouraged to pump up supply, creating a potential glut. However, we could see increased tensions and actions that will keep prices at a significantly profitable level.

      United Capital Research