Oil prices to rally this week

Market fundamentals point positively this week and oil prices are likely to continue their gaining streak despite continued restriction of business activities and cross-border transactions across the world.
Last week, price of international benchmark Brent rose above $30 per barrel, while WTI and other crude grades including Nigeria’s Bonny Light rose above or neared $20 per barrel.
According to an-lysts at Oilprice.com, ail markets are on course to see their second consecutive weekly gain as the OPEC+ production cut comes into effect and a wave of shut-ins hit the shale patch.
Besides shale oil production shut-in, which is mainly in the United States, other global oil majors have scaled back their outputs as oil price dampens appetite for continued hydrocarbon production. In addition, shale drillers hinted that fracking restart can only be possible with US benchmark West Texas Intermediate (WTI) at $30 and above.
Oil rally may be going too far. Oil prices have doubled in a little more than a week on mounting supply shut-ins and hopes of a demand rebound. But an-lysts are warning that the newfound optimism is premature.
“Even following a gradual resumption of economic activity, demand may remain below the 2019 level for years to come,” Commerzbank an-lysts said
According to IHS Markit, oil production may fall by as much as 17 million barrels per day (mbpd) I second quarter (Q2), the largest decline in history.
Meanwhile, North America has 1.7 mbpd. U.S. and Canadian oil production is on track to decline by 1.7 mbpd by the end of June, according to Reuters. “When prices went negative it really accelerated some of the cuts,” Allyson Cutright, director at Rapidan Energy Group, told Reuters.
Production shut-ins have its own challenge that may not be easily resolved should demand for oil picks earlier than expected. Currently, trial vaccines and cure medicines are ongoing, and a major breakthrough can spike demand and price. If that happens, to bring back into operation these oil wells that are shut-in, will not only take time but huge funds. Also, U.S. and China have backed away from trade tensions.
It is in view of this that the head of oil trading firm Vitol, Russell Hardy, said peak demand may arrive sooner. In an interview with Reuters, Hardy stated that the pandemic could accelerate the date of peak demand, due to permanent scars in jet fuel demand and pushes for cleaner air. But he also suggested that today’s downturn will tighten the market in the years ahead due to supply erosion.
Corroborating Russell Hardy, an executive vice president at Apache Corporation, Clay Bretches, responding to an-lysts on an earnings call on whether idled wells can easily be restarted, said: “On earnings calls, multiple oil executives expressed uncertainty about how quickly and pain-free shuttered oil wells can be restarted. When you shut in wells, especially for a long period of time, you have a lot of surprises. Some of them are good and some of them are bad.”
Also, Saudi Arabia has raised price of its crude grades although it still sells at discounts. It raised the price of its Arab Light cargoes to Asia to $5.90 below the benchmark price, a sign that it is still fighting for market share. But for cargoes to the U.S., the price traded at a premium.
Prices of Nigerian crude grades have begun to go up after falling to $10 per barrel or less.

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