"Unprecedented Demand Drop"... 'Will Oil Prices Fall to $20 per Barrel?'

[Asia Economy Reporter Naju-seok] There is a forecast that international oil prices will maintain the $20 per barrel range for some time. Due to the novel coronavirus infection (COVID-19), the global economy is contracting faster than expected, inevitably causing a sharp decline in crude oil demand.

On the 17th (local time), investment bank Goldman Sachs predicted that the average price of West Texas Intermediate (WTI) and Brent crude oil in the second quarter of this year would be $20 per barrel. Earlier, Goldman Sachs had forecasted the WTI price at $22 per barrel on the same day, but lowered the forecast further within just a few hours.

International oil prices declined after the outbreak of COVID-19 in China, amid concerns over the economic slowdown in China, the world's largest oil consumer. Moreover, after the failure of the production cut agreement, Russia and Saudi Arabia announced production increases and entered a "chicken game," accelerating the downward trend. Earlier this month, Goldman Sachs had reflected these supply and demand conditions and predicted WTI at $29 per barrel and Brent crude at $30 per barrel.

Goldman Sachs revised its oil price forecast downward again after multiple adjustments because it saw changes in supply and demand conditions due to the rapid spread of COVID-19. Jeffrey Currie, Global Head of Commodity Research at Goldman Sachs, said, "The demand reduction effect caused by COVID-19 is exceeding initial predictions," and predicted that "the decline in commodity demand is unprecedented." This is because the COVID-19 shock is occurring simultaneously worldwide.

[Image source=Yonhap News]

In the crude oil market, both supply and demand sides are facing negative factors, causing market forecasts to deteriorate rapidly. However, Goldman Sachs believes that the supply and demand situation is beyond initial expectations. Previously, Goldman Sachs lowered the U.S. first-quarter GDP forecast from 0.7% (annualized) to 0%, and expects a -5% growth in the second quarter.

Goldman Sachs expects that once the spread of COVID-19 subsides, prices of commodities other than crude oil will rebound quickly. This is because crude oil faces supply-side issues such as increased production among oil-producing countries.

However, there is also an analysis that the recent series of oil price declines could help companies struggling due to COVID-19. Currie said, "For companies facing difficulties due to reduced profits from COVID-19, the decline in oil prices will have a positive effect."

Meanwhile, on the New York Mercantile Exchange (NYMEX) that day, April delivery WTI closed at $26.95 per barrel, down 6.1% ($1.75). May Brent crude also traded down 4.56% ($1.37) at $28.68 per barrel.

This content was produced with the assistance of AI translation services.