V-Shape of Oil Prices Is Expected on Demand Recovery in 2020

Crude oil prices reflect the market’s volatile and liquid nature, as well as oil being a benchmark for global economic activity. Oil prices rose about 2% in a volatile session on Thursday, buoyed by signs of a marginal improvement in the U.S. economy and a tepid rise in fuel demand. Price gains were limited by rising number of cases of COVID-19 in some U.S. states. U.S. West Texas Intermediate (WTI) crude futures gained 43 cents, or 0.43%, to $39.15, but were on track for a slight drop for the week. Brent crude futures rose 33 cents, or 0.8%, to $41.76, but were also heading towards a decline for the week.

The WTI Crude Oil market has pulled back slightly to kick off the trading session on Thursday only to turn right back around and show signs of life again. That being said, the range is relatively small for the Thursday session and it appears that the markets are simply trying to figure out where to go next. The $41 level above is obvious resistance, just as the $35 level underneath is a support. The 50-day EMA and the 200-day EMA is setting this market up for a bigger move, but right now we are simply trying to figure out where the “new normal” happens to be. 

Despite recent regional increases in U.S. infections, “vehicle traffic continues to improve, international flights re-gain ground, employees phase back to work and discretionary activity picks up,” said Michael Tran, managing director of energy strategy at RBC Capital Markets in New York. Oil and gas markets recovery is likely to gather pace in the second half of the year as countries further ease lockdown restrictions and demand rises, said OPEC Secretary General Mohammad Sanusi Barkindo, expressing cautious optimism that the worst is over. “The US economy is still on track for a V-shaped recovery at least through 2020 and still sees a V-shaped recovery ahead even as coronavirus cases are increasing throughout the U.S.,” Goldman Sachs CEO David Solomon said.

Looking at fundamentals, combined with increased economic and geopolitical unrest globally, investors are waiting to see if the producers, known as OPEC+, extend their record cut beyond July. There is no real justification for oil market optimism in 2020. Both the summer and autumn of 2020 will be volatile periods for oil markets with a possible economic recession of an unknown magnitude hitting the global economy. Optimism should instead be pointed towards 2021. The year 2021 will recharge oil and gas with a bang, as we jump from a demand-driven market to a supply-driven situation. Prices will increase, even with a global economic crisis, but revenues will be distributed to new power players that will replace the current U.S.-E.U. centric oil and gas upstream sector. An average crude oil price (Brent) of above $40 per barrel is wishful thinking in 2020. The V-Shape is expected to be happen after the international flight’s activities restart, international trade increase, global market recovers and COVID-19 vaccine positively tested.