During the Nairametrics Economic Outlook webinar in May 2020, I took a buy option that Oil prices would hit the $50 mark by the end of 2020. It was a huge gamble to take but thinking through the question in a matter of seconds, my intuitions led me to the buy option.
Many will wonder what crystal ball I must have looked at when I decided to make a buy option at the webinar, well my take on that will be the crystal ball of my intuitions. The world order has many times seen the oil prices starting to rise more as the winter season starts getting to spring and many of the world’s production economies gear up for the peak of production and supply chain distribution during the summer.
As summer tends to reach it’s peak towards the end of July into August, seemingly, oil prices take a slight a plunge to adjust for the effects of the last part of the summer holidays into fall where another sizeable round of production kicks off to meet the demands of the winter period which is filled with several celebratory holidays such as the American Thanksgiving, Christmas, the beginning of a new year and many of the Asian holiday celebrations such as the Chinese new year.
That trend was similar at the end of 2019 and we were all preparing for the growth of the world economy which had been predicted to grow at 3.3%. With the start of a major outbreak of COVID-19 during the Chinese New Year in January, the disruption of the world economy began not many believed that the impact would be far more detrimental to the world in terms of production and supply chain management. The effect of this and many other incidents like the Saudi Arabia and Russia oil war sparked the biggest downward trend of Oil prices which at one time was predicted to hit rock bottom at below $10/barrel as it happened in the early 1980s.
Two major challenges were greatly responsible for this downward spiral which I believe if responsibly managed in the second half of the year would lead oil prices heading in Northern direction and probably reaching my predicted price of at least $50/barrel by the end of the year.
1. The surge in the cases of COVID-19 hospitalization which disrupted the health care system and invariably the economic modalities of many countries.
2. United States of America’s reactions to the global health pandemic which led to not having a united front for dealing with the pandemic.
As can be seen, the oil price averages have started moving the Northern direction again following its lowest average of $18/barrel in April, when the whole world was fully shut down in order to manage the health care crisis. In May, it averaged $29/barrel and it is looking at averaging out to $40/barrel at the end of June. This trend I believe will continue because more economies are beginning to open up slowly and the worlds production and supply chain management systems which for me are great determinant for the oil market are beginning to get back to a bit of normal.
However, there are a few boxes that must be checked in order to ensure that this trend will continue. For this, I have identified three boxes.
1. How the world manages a potential next wave of an upsurge of COVID-19. I believe that Europe and Asia are the most prepared for this, with parts of North America (excluding the United States of America), South America and Africa too.
2. The increased opening of the world’s economies to trade and movement which would begin to become fairly functional towards the last parts of the third quarter of the year. However, I fear that the United States of America would lose out on this if they do not address the first box more adequately.
3. The outcome of the world’s most-watched and anticipated democratic election. The November 3, Presidential elections.
The outcome of the November 3, US presidential elections, will play a huge and fundamental role in the way the outcomes of the first two boxes will play out. If there is a return of the incumbent, I see Europe, Asia and the rest of the world build their own reserves towards self-reliance and the continued economic wars would only lead to more chaos for the Oil markets.
The increased numbers of COVID-19 challenges in America for box one could lead to more difficulties in opening economies to deal with America and the movement of Americans. Thereby increasing trade tensions and invariably leading to America flooding the supply of the Oil market to push prices down.
A change in the realms of power to a new government, could lead to some form of stability between the traditional allies and even adversaries as the world would come together to manage the challenges of box one, leading increased and better managed economies being opened and invariably a more stable oil market to help manage the economic challenges of a health and safety issue thereby improving production and supply chain management systems and finally Oil markets driving the oil prices further North to reach the projected $50/barrel at the end of 2020.
Finally looking at my crystal ball of intuitions, I see better-managed world economy by the end of 2020 and oil process above the $50/barrel and a more restructured world economy in 2021 with the various applications of the NEW NORMAL.