Oil demand can head north and overtake the supply by the end of this month, says Goldman’s Head of Commodities, Jeffrey Currie.
Sharing his concern as regards the recent oil crisis in an interview with Barron’s Market Brief, Currie noted that the expected upturn in oil demand would be credited to the production cuts implemented by major producers.
Currie, however, believes that about 1.2bn barrels in storage need to be forced down for oil prices to climb.
There are three stages for this to occur, according to Currie.
He stated, “The first oil in storage to go will be the millions of barrels in floating storage. It is the most expensive kind of storage, so it would make sense that traders and producers first aim to get rid of it to save on tanker fees. This will happen sometime in the third quarter of the year.
“The amount of oil removed from floating storage will be around 450m barrels. In the fourth quarter of the year, oil stockpiles in onshore storage will begin to decline by up to 400m barrels.”
However, he does not see a strong rebound in prices anytime soon, as such a rebound would be undesirable.
If Brent rises above $30 a barrel, he argues, it will spur a rebound in production, implying a rebound in supply; and a rebound in supply will immediately pressure prices yet again.
He noted, “Demand remains the key factor for oil prices, and demand will likely remain depressed throughout the year. Mid-April, it fell by about 30m from pre-crisis levels.
Now, demand is about 19mbpd below pre-crisis levels, Currie added. “While this demand has started to improve, it would still be down by 17mbpd from pre-crisis demand this month and by 12m barrels in June and July. By August, things will be looking up, with demand at five to six million bpd bel ow pre-crisis levels.”
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