January 2020 was marked by turbulent events for the oil market. Nevertheless, despite the threat of a military conflict in the Persian Gulf, WTI prices fell sharply from 65 to 57 dollars per barrel. Does this mean that the market is oversaturated with oil reserves and the movement of prices to the south will prevail in 2020?
According to the analytical department of the FortFS broker, the scenarios in which the price can reach $ 100 are still relevant and the northern direction is still a priority.
A possible blockade of the Strait of Hormuz, in case of an aggravation of the geopolitical situation in the Middle East, will lead to energy collapse. Despite the fact that the United States is currently a net exporter of WTI crude oil due to a constant increase in production on its territories (including through the shale method), even a 1 week of transport paralysis in the Persian Gulf will push oil prices to no less than $ 75- $ 85. If, as a result of military operations, oil refineries suffer again, the price will quickly surpass the $ 100 mark.
As a restraining factor for oil prices there is a predicted decline in oil demand from China. However, if a trade agreement is signed with the United States, which is likely in the near future, this factor may be gone. Another major factor holding back oil prices is the hedge positions of shale companies. The price of 50-65 dollars per barrel is beneficial for the shale industry and brings good profits. A price above these levels gives advantages to traditional oil companies - the main competitors of shale oil suppliers. Consequently, short hedge positions from $ 65 were initiated by the shale industry in order to protect against sharp price reductions in the future, as well as to limit the profitability of major competitors and squeeze them out of the market.
At the same time, OPEC’s joint efforts have high potential to hold oil above $ 50.
In addition, the new international rules that came into force this year to restrict the use of high sulfur fuels by ships have already forced Japanese shipping companies to buy Pyrenees at $ 96 a barrel.
Other similar grades of oil are also already trading at a premium of $ 15 to $ 20 to the market price. This indicates a high market demand for new high-quality fuels and the corresponding grades of oil, which in the future will push the price of WTI up.
Thus, according to analysts at the FortFS broker, one should not expect a decrease of WTI oil below $ 50, while long-term growth potential to the region of $ 75 per barrel has good chances for implementation.