Earlier today, oil prices saw an average drop of 4%. Brent crude features (BRENT) fell as much as 5.8% and U.S. West Texas Intermediate (WTI) dropped as much as 6%, hitting their lowest levels since May.
Said drops can be attributed to reduced demand due to travel bans and restrictions that the COVID-19 pandemic has created. Consequently, The Organization of the Petroleum Exporting Countries (OPEC) and other oil producers have finally agreed to cut production in attempts to ease pressure on oil markets. This agreement comes after prices dropped earlier in the year due to OPEC’s and Russia’s failure to agree upon production cuts. Reducing output rise would help secure a large deficit through the first quarter of next year and the rest of 2021, they said.
Despite these declines, analysts at Goldman Sachs remain optimistic that global demand will bounce back by 6% in 2021 and return to “pre-pandemic” levels by 2022. Among the various oil products, gasoline is expected to rise first. The world is seeing a shift from public to private transportation and higher use of private vehicles in substitution of air travel for domestic tourism. If government-led infrastructure projects are promoted, diesel demand is forecasted to recover by 2021. However, jet fuel demand, which has taken the hardest toll from the coronavirus crisis, is not expected to rise anytime soon.