Raw materials in this article
by Max Holzer, guest author of Euro am Sonntag
So The oil price fell quickly in April, it recovered so quickly – albeit at a lower level than before the Corona crisis. The low point for a Brent keg was $ 19.80 in April. In the meantime, the price has more than doubled. The big question is: is this upward trend continuing?
The recovery is unlikely to continue at this rate. The oil price is still very sensitive to economic and political news, as was observed, for example, in mid-June. If there was a stable upward trend before, the oil price fell in line with the prices of other risky investments such as stocks. The reason: In the United States, there was fear of a second wave of corona, and the Federal Reserve also gave a very subdued economic assessment.
The very big volatility phase is over
This shows that there is still a lot of uncertainty about the pace of global economic recovery. And this also affects the oil price. It is basically determined by the development of oil demand – and this increases when the economy picks up again. Currently, the demand for black gold is still ten to 15 percent below the level before the outbreak of the corona pandemic.
As long as it remains uncertain how the pandemic will develop, there will also be above-average fluctuations. But the very big volatility phase is over. We do not expect such strong distortions as in April, when a negative price for a futures contract was recorded for the first time.
The fear was responsible that the earth camps could “overflow”. This absolute exceptional situation could only occur again if the largest earth consumers in the USA, Europe and China go into a large shutdown at the same time. But that is very unlikely.
In addition, the petroleum producing countries of OPEC + decided very quickly to cut production and implemented them consistently. The players on the futures market have meanwhile adjusted their positions accordingly. If the demand slumps again, you are better prepared.
The likelihood of a scarcity is extremely low
Nevertheless, there are clear limits to a strongly positive oil price development, since inventories are still at a record high. It should take at least twelve to eighteen months before they are back to normal levels. Creating space in the warehouse is in the interest of all producers, since the increased inventories cause enormous capital commitment.
First of all, the oil suppliers will reduce their inventories. Even if demand should pick up quickly, the states of OPEC + can react by expanding their offerings, as they have free production capacities as a result of their previous subsidy cuts. The fields that are currently not in operation are simply started up again if necessary. The likelihood of a scarcity is extremely low.
It is also worthwhile for US slate producers to return to production at a price of around US $ 40 a barrel (Brent), which they had recently throttled or even stopped altogether due to low prices. This increases the offer even further.
The price will only increase until supply and demand are balanced. We expect demand at pre-crisis level again at the end of 2021 at the earliest. Therefore, price setbacks rather than further rising prices are possible in the coming months. For the year, however, we anticipate an oil price of around $ 45 per barrel of Brent rohl. It could well rise to $ 50 by the end of 2021 before the pre-crisis level of around $ 60 should be reached in 2022.
The oil market offers attractive investment opportunities
Therefore, the following applies: The possible development outlined on the oil market basically offers attractive investment opportunities. But if you are a private investor thinking about an investment in Rohl, you should be aware that you can only invest in the futures market. And the performance of futures contracts does not reflect the performance of the cash market one-to-one.
That means that there may be a loss of value even with rising oil prices. The investment offers an alternative, for example, through commodity funds that invest in suitable futures contracts.
Head of Relative Return at Union Investment
Since 2017, Holzer has headed the Relative Return department within Union Investment’s portfolio management within the newly created Multi Asset division. Previously, he headed the Asset Allocation unit from 2004 to 2016. Union Investment is the fund company of the Volks- und Raiffeisenbanken. With currently around 370 billion euros in assets under management, it is one of the largest German asset managers for private and institutional investors.
More news about lpreis (Brent)
Image sources: huyangshu / Shutterstock.com, Carsten Lerp / Union Asset Management Holding AG