Kiev. Ukraine. Ukraine Gate – February 16, 2021 – Economy
World oil prices have reached $ 60 a barrel, a level that was observed a year ago, before the COVID-19 pandemic began. Analysts consider the rise in price somewhat premature.
Alexander Martynenko, head of the ICU Group’s corporate analysis department, noted that there are three key factors driving oil prices up.
First, as the analyst noted, there is a lot of free money in the financial markets. In addition, investors are optimistic about easing quarantine restrictions around the world. Thirdly, OPEC + countries comply with production limits.
“All these factors help investors to focus more on the prospect of demand recovery than on the current still weak market,” Martynenko said.
Dmitry Churin, the head of the analytical department of the investment company Eavex Capital, emphasizes that oil prices are growing not so much because of the growth in real demand, but, possibly, because of speculation in the financial markets.
“Roughly, the situation can be imagined as such that traders who trade oil futures and options have created increased excitement around this natural resource, as a result, oil producers are happy to raise prices, while the physical demand for oil is now practically not increasing,” – says Churin.
What will happen to prices next?
The price of oil has already reached the levels that analysts had expected in November-December at the end of 2021, Martynenko points out. Therefore, the current rise in prices looks premature, and this opinion is shared by an increasing number of market participants, he says. Nevertheless, according to the expert, “unprecedented volumes of liquidity on the market” can drive up prices even more than $ 60 per barrel.
“This is evidenced by the current aggressive position of investment funds. For example, representatives of some of them already admit the possible entry of quotations into the range of $ 70-80 by the end of the year. With a further movement of prices to the level of $ 70, the probability of a downward correction will grow. Moreover, the risk slow recovery in oil demand remains high, “- explained Martynenko.
Churin of Eavex Capital recalled that in the past, high oil prices led to investments in shale oil production, which later increased the level of total oil production in the world.
“In addition, expensive oil stimulates investment in alternative fuels and leads to a decrease in demand for physical oil. There are already signs that a similar historical pattern will soon repeat itself,” the expert predicts.
Investment bank Goldman Sachs predicts that oil prices may rise to $ 65 per barrel by July 2021. Growth will be observed amid a tense oil market and a slow recovery in demand.
The International Monetary Fund (IMF) expects the price of Brent crude in 2021 at $ 51.1 per barrel. In 2022, the price will drop to $ 50.2 per barrel.
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