State Street Global Advisors: ‘Oil prices are likely to gyrate’

April 14, 2020

Elliot Hentov, Head of Policy Research, EMEA at State Street Global Advisors, has shared his view on the latest development in the oil market:

‘We had expected major supply cuts to come later this spring, but the unprecedented OPEC+ agreement only kicks in starting May 1st. This is nearly two months following the beginning of the Coronavirus shock, which has reduced demand by roughly 20% since then. As a result, inventory build-up has been massive and there will remain a major oversupply for the coming months. While the OPEC+ deal is helpful, any meaningful supply-demand equilibrium will not be restored until there is clarity on the demand recovery. In the meantime, oil prices are likely to gyrate and continue to have downside risks until they experience a sharp rebound in the second half of 2020, when they should settle at about 25% lower than their pre-crisis levels.

‘Concerns about oil-linked sovereign wealth fund asset disposal are not market-relevant, but large funding needs should help in keeping yields up across oil producing emerging market borrowers. This could be exacerbated by a probable return of conventional geopolitical risks in the aftermath of the Coronavirus crisis, with repeated bouts of flight to safety and sustained dollar strength.’