3 Phase Projection (Read Description)
As shown by the chart, I have projected 3 phases for OIL in the future. The biggest unknown is the time frame exactly each phase will take place.
Phase 1: Oil has a massive short term increase in price due to OPEC+ coming together and agreeing on production cuts. Here's why I think that's going to happen:
Phase 2: Although prices will increase from news of a new OPEC+ deal and cuts in supply, the underlying fundamental situation (significant decrease in demand due to COVID-19) will keep prices low for the near term, and the selling will remain strong but not as heavy as the past month. I project this phase to last no more than 2 months from now.
Phase 3: By summer, COVID-19 cases will be decreasing (and or will have already peaked), and businesses will resume normal operations. Therefore, oil demand will increase until it gets back to normal demand levels, probably by fall. This will be a more gradual price increase over a longer period of time. It may take 6-9 months from now for oil prices to reach the levels they were at before the COVID-19 global economic shock.
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Phase 1: Oil has a massive short term increase in price due to OPEC+ coming together and agreeing on production cuts. Here's why I think that's going to happen:
- There is not a single oil producing nation that can withstand prices per barrel this low in the long term. All of their balance sheets will be significantly damaged if oil prices remain this low, with many companies going bankrupt.
- Russia is the country that has agreed to meet up again to discuss production cuts. When OPEC+ disbanded a few weeks ago it was due to Russia and Saudi Arabia not coming to an agreement. Now they are both meeting with one similar goal in mind: to cut production and increase prices. There is only one reason these nations would go back to the bargaining table: to come to an agreement. The only question is how significant the cuts will be.
Phase 2: Although prices will increase from news of a new OPEC+ deal and cuts in supply, the underlying fundamental situation (significant decrease in demand due to COVID-19) will keep prices low for the near term, and the selling will remain strong but not as heavy as the past month. I project this phase to last no more than 2 months from now.
Phase 3: By summer, COVID-19 cases will be decreasing (and or will have already peaked), and businesses will resume normal operations. Therefore, oil demand will increase until it gets back to normal demand levels, probably by fall. This will be a more gradual price increase over a longer period of time. It may take 6-9 months from now for oil prices to reach the levels they were at before the COVID-19 global economic shock.
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