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Commodities

Will Oil reach $50 at the end of the year?

Although $50 is less than what Saudi Arabia needs to balance its budget, it is in line with global realities.

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Now that oil is recovering, when will naira recover?

Last month, reports making the news confirming Saudi Arabia’s Finance Ministry budgeting oil prices to be around $50 a barrel for the next three years.

This was according to analysis of the kingdom’s fiscal plans by Goldman Sachs Group Inc. The investment bank said; “Using our own estimates for the breakdown of government revenues, we calculate that the numbers presented in the budget statement are based on an average oil price of around $50 a barrel between 2020 and 2023”. Although $50 is less than what Saudi Arabia needs to balance its budget, it is in line with global realities.

READ: Fuel prices: Information Minister defends President Buhari’s comparison of Saudi with Nigeria

In their weekly outlook, OCBC Bank expects “Brent to trend from $40-$43/barrel, as we head ever closer to the US Presidential elections”. Brent has been trending in the range for the past few months. Prices have been supported by hurricane in the U.S and the Gulf of Mexico and OPEC+ compliance levels which have restricted supply. However, what has limited an increase is capped demand and an increase in Covid-19 cases.

READ: Standard Chartered further supports fight against COVID-19 with $50 million assistance fund

This is in addition to what Goldman Sachs said as they assessed what a Joe Biden win will mean for Oil as it will increase costs for the shale patch and will likely result in a weaker U.S. dollar. The investment bank expects a Biden Administration will tighten regulation, taxes, methane restrictions, and new drilling for the oil industry, which will raise the cost of U.S. shale production, leading to “shale supply headwinds.”

READ: Where is oil headed in the short term?

With Libya restarting its biggest oilfield, Sharara, oil supply seems to be coming online with the lifting of force majeure at the Sharara oilfield. A Libyan source told the Reuters news that initial output at Sharara would be 40,000bpd, with total production in the country at 355,000bpd.

READ: Goldman Sachs misses Q1 profit projection, drops by 46%

Conclusively, it appears that coronavirus relief aid negotiations and stimulus in the US seem to be weighing in on market sentiment and making it difficult for crude oil to attract investors. Although winter is approaching which means more heating and demand for oil, it is tough for oil prices to reach $50.

Dapo-Thomas Opeoluwa is an Investment Banker and Energy analyst. He holds a degree in MSc. International Business, Banking and Finance from the University of Dundee and also holds a B.Sc in Economics from Redeemers University. As an Oil Analyst at Nairametrics, he focuses mostly on the energy sector, fundamentals for oil prices and analysis behind every market move. Opeoluwa is also experienced in the areas of politics, business consultancy, and investments. You may contact him via his email- [email protected]

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