Oil prices have fallen to their lowest level since 2002 as planned output cuts proved insufficient to counterbalance the COVID-19 related drop in demand.
Different oil-producing countries and OPEC had signed a historic agreement on Sunday to cut production by almost 9.7 million barrels a day, but it’s seemingly not enough.
The benchmark WTI fell down to $19.21 per barrel yesterday, which was the lowest level in 18 years. At the time of filing this report, Crude Oil WTI was trading at $19.89, up by $0.02 or 0.10% with Brent Oil trading at $27.96, up by 0.98% or $0.27.
A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities, told ProPakistani that global oil markets are going through structural changes. “There is a twin shock on demand and supply side,” he said.
“The recent production cuts by OPEC+ and G20 are not enough in the short term. However, as demand increases, the markets will get balanced as Shale producers shut-in,” noted Soomro.
Soomro highlighted that Pakistan can reap a number of benefits if it leverages opportunity in a timely manner. The country can:
- Improve its current account
- Increase Foreign exchange reserves
- Lower energy prices, helping businesses and consumers
- Reduce RLNG rates
- Further cut the interest rate
- Set the stage for manufacturing-led growth
“However, amidst the lockdown, the impact will be less visible as the demand has fallen by a good 50-60%,” said Soomro. “Once we get closer to the natural economic trajectory – after a few months – we will start seeing signs of optimism among the masses,” he added.
Adnan Sami Sheikh, a senior market analyst said that Pakistan is a net importer of oil so the oil price crash will mean savings of around $5 billion
International crude oil analyst Osama Rizvi anticipates that oil prices might even go down to 10 – $14 range (WTI). and may hover from $17 to $25 for a longer period of time.
He noted that under such circumstances, Pakistan can take much advantage by utilizing and building up its oil storage capacity.