Oil Rebounds After Yesterday’s Major Sell-Off

Oil Video 09.09.20.

Russia Plans To Drill More Wells To Prepare For Oil Demand Rebound

In an article published in the Russian Energy Policy journal, Russia’s Energy Minister Alexander Novak emphasized the necessity to save the Russian oil services industry.

The oil services industry is under severe pressure in the whole world as oil producers cut their capex plans. The charts of the world’s leading oil services firms like Schlumberger or Halliburton tell a sad story – these firms are going through an unprecedented crisis.

As Russia cut its oil production in line with the OPEC+ production cut deal, its oil services firms started to suffer from lack of contracts. Russia fears that if it loses its services firms, it will not be able to bring production back quickly.

In this light, Russia’s plans is to finance drilling of wells that will be used later. According to Novak, Russia may drill about 2,700 wells from 2020 to April of 2022 in order to prepare for the rebound of oil demand.

In the near term, these plans will have little influence on oil prices which are mostly impacted by the dynamics of inventory levels and market’s expectations regarding the speed of oil demand recovery.

In the longer-term, an overhang of production from Russia may put some pressure on prices since traders will know that Russia is ready to immediately boost its production once the OPEC+ production cut deal is over.

Fitch Ratings Follows Others And Cuts Its Oil Price Forecast

Many analysts and oil companies have already cut their long-term oil price forecasts in 2020. Fitch Ratings is the latest notable name in this list.

According to Fitch, long-term Brent oil prices will average $53 per barrel while WTI oil prices will average $50 per barrel. The previous forecast implied levels of $55 for Brent and $52 for WTI.

Fitch is also pessimistic on the potential rebound in 2021 since its WTI forecast for the next year is just $42 per barrel.

The growing chorus of oil price pessimists is a negative factor for the oil market. As there are significant doubts about oil’s long-term ability to settle above the $50 level and continue its upside move to much higher levels that were seen not so long ago. In this light, traders will demand very significant catalysts to push oil above recent highs.

For a look at all of today’s economic events, check out our economic calendar.