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Oil prices will rise again

*Several factors contribute to this in the coming months, the most important of which is the recovery in demand with the opening of global economies

The “OPEC” and “OPEC +” countries met last Saturday and approved the extension of production cuts in May and June to include July, stressing the need for member states to adhere to production quotas, and pledging countries that exceeded their production quotas In May and June, future compensation will be made by additional discounts in July, August, and September.

This meeting came after a large increase in oil prices as a result of partial or complete openness of the economies of different countries after the imposed stone due to the Corona virus, where the demand for oil increased significantly, perhaps by about 4 million barrels per day, and after the closure of a large number of wells in each of the states United and Canada.

On Sunday, Aramco announced its official crude prices for July, as it raised the price of crude oil to all of its clients, but the biggest increase was from its clients in Asia, and the increase was the largest in history. After that, the UAE’s ADNOC announced that it would raise its prices, and Kuwait and Iraq are expected to announce the price increase as well. With the opening of the markets, oil prices increased significantly.

Then yesterday, Monday, the press conference related to the meeting was held, in which the member states ’commitment to quotas was confirmed. Saudi Energy Minister Prince Abdulaziz bin Salman stressed at the conference the commitment of member states to their production quotas, and that the voluntary reduction that Riyadh carried out in June will end at the end of the month, production will be increased and this amount will be used to offset the increase in domestic demand for oil during the summer season.

With the end of the “OPEC” meeting, there were reports of the return of pumping oil in Libya from the “Sharara” field by 30 thousand barrels per day, to reach its full production capacity within three months. Before the press conference, there were reports of the start of pumping in the “Elephant” oil field to the port of “Mellita”. 

After the conference, oil prices fell by more than 3 percent after receiving news that the oil companies, which vacated production and drilling platforms two days ago due to Hurricane Kristenple in the Gulf of Mexico, will return within a day or two to these platforms because there is no destruction in them.

With the improvement in oil prices significantly in the last week, American companies began opening wells that closed or reduced their production, but some regions still suffer from large price differences, which means that prices are still low, and there is no desire to reopen the wells In which.

Oil markets in the coming months

The foregoing is a summary of the most important factors that affected oil prices in a simple period of time, and it shows the extent of complexity and complexity of matters in the oil markets. This means that forecasting oil prices during this period is very difficult, so this will focus on price trends rather than their amount.

There are many factors that contribute to raising oil prices during the coming months, the most important of which is the recovery in oil demand with the opening of global economies, regardless of corona. Oil demand will rise and prices will improve even if there is a global economic recession, because the recession is much better than the state of the stone under Corona.

There is a lot of evidence for that, the most important of which is the decrease in unemployment rates in the United States, although the published figures are exaggerated for technical reasons, the increase in car sales significantly in China, and the return of crowding to almost what it was before Corona in a number of mega cities around the world. The growth in demand for oil is reinforced by the reduced use of public transport and the use of private cars for fear of corona infection and for maintaining social divergence. The increase in the use of private cars will increase the demand for gasoline, partly offsetting the decrease in the demand for aviation fuel, because returning to pre-SK levels requires a longer time than returning to using cars.

The floating stock also decreased, so that most of the surplus stored by companies to benefit from the time differences has disappeared, due to the increased demand that led to the disappearance of these price differences. As for the commercial stock, it is very high, but it is expected to decrease significantly from next month.

On the supply side, there are important developments that all contribute to raising oil prices, the most important of which is the reduction of “OPEC +” countries, which will shrink to 7.7 million barrels per day from August (August) to the end of the year, in addition to the decrease in global oil production, due to a decrease The investments that resulted from the significant drop in oil prices. Perhaps the most important drop will come from the United States, although companies have opened wells that they closed in recent weeks.

Shale oil well depletion rates are high, and may reach 65 percent in the first year. American producers were able to increase production by investing more, digging more, and completing more. The depletion rates were compensated and increased, so American oil production continued to grow until the United States became the largest oil producer in the world.

Now companies ’investments have decreased between 20 and 55 percent, and with this decline, and in light of low oil prices, completions have stopped, and the number of rigs has decreased dramatically to the point that the number of rigs in Texas is now the lowest in several decades, and the number of rigs in each of the fields, Eagle Ford In southern Texas and Bacan in North Dakota at historic low levels. This means that high rates of decline will not be compensated, so American oil production will drop significantly.

Many raise the idea that shale oil activities will return as they were with high oil prices, and that what happened in 2016 from the beginning of a large and continuous increase in production will be repeated. This idea is not logical now for several reasons, the most important of which is the abundance of capital in 2016 and the desire of investors to invest in Al Sakhri, and this is the opposite of the current situation. Gas and liquid gas prices were also much higher than now. Any product in the rocky areas is concerned with the prices of oil, gas and liquid gases at the same time.

The collapse of gas and liquid gas prices means that the rise in oil prices will not repeat the 2016 scenario. What will revive the rocky is the rise in Texas crude prices above $ 45 a barrel, with gas and liquid gas prices increasing at least 40 percent from the current levels, which is not expected to be achieved at present. Because of the abundance of gas.

In sum, oil prices will rise.