The collapse in the price of and demand for crude oil during the pandemic combined with capital markets increasingly refusing to fund shale drilling - as they lose interest in the “old” economy - has and will drive a sharp drop in capex which will impact non-OPEC production decline rates. On that basis, we see oil and fuel prices recovering in 2021 as a rapid rebalancing of the market and higher prices may not result in rising non-OPEC production as seen during previous cycles.
The key moment in terms of a rally in crude oil will be the availability of a vaccine which should drive a recovery in global travel and commuting activities. Staying with energy, it is widely expected that a Biden win would see the U.S. join global efforts to reduce emissions through investments in greener energy solutions while at the same time curbing the rise in shale oil production through increased regulations.
These developments should see crude oil prices – through lower supply growth – supported more by a Biden win than what would otherwise be seen with Trump staying in the White House. In the short-term, however, crude oil and fuel products remain troubled by too much supply at a time when global coronavirus cases are surging again, thereby raising concerns about the direction of global fuel demand.
The OPEC+ group will meet on December 1 and decide whether to implement or postpone the previously agreed 1.9 million barrels/day production increase from January. With a vaccine still months away from being rolled out globally, the current slow recovery in fuel demand together with rising production from Libya has left the group with a tough decision to make.
The U.S. election result, OPEC+ meeting and Covid-19’s impact on demand are likely to be the main factors determining where Brent crude oil will finish the year within the $38/b to $48/b range we mentioned in our recently published Q4 2020 outlook. For now, both Brent and WTI crude oil remain stuck in ranges in the low 40’s with limited possibility of a breakout before November 3.
Gold has settled into wait-and-see mode while trading close to $1900/oz. It’s current struggle to find fresh momentum saw funds in the week to October 13 reduce their futures and options net-long to 12 million ounces, the lowest since June 2019 which was just before gold began its 50% rally to the current level.