SMM: ING Groep NV said oil prices would fall back to $20 a barrel as production cuts agreed by global oil producers this week would fall below target levels and oversupply could crush the global storage system.
Warren Patterson, head of commodities strategy at ING, said oil majors, including Saudi Arabia and Russia, were likely to reach only one global deal to reduce production by 6 million to 7 million barrels a day. That is more than three times the rate of OPEC+ production cuts at the start of the year, but below the at least 10 million barrels a day proposed by US President Donald Trump last week.
Patterson said the government's blockade measures to curb the spread of the new crown virus will reduce demand by about 15 million barrels a day in the second quarter. As storage capacity runs out, Brent crude, which has tumbled 50% this year, will fall further.
"I've been watching commodity markets for more than a decade, but I've never seen anything like this," Patterson, based in Singapore, said in a telephone interview. "the scale of the demand disruption we have seen in the market is shocking."
Amsterdam-based ING, which finances commodities across the value chain, expects Brent crude to average $20 a barrel in the second quarter and rebound to $45 in the fourth quarter. Brent crude oil futures were at $33.34 on Thursday.
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