Janus Henderson senior investment manager Tal Lomnitzer believes OPEC’s return to supply discipline is not sufficient to balance market suffering following this month’s collapse in oil prices.
The fall in prices has been attributed to a variety of reasons, including COVID-19 and the associated lock downs, economic contraction and travel bans.
“Clearly negative oil prices are an anomaly that can only exist briefly before being arbitraged away,” Lomnitzer, who is a member of the company’s global natural resources team, said.
“The May price of oil indeed bounced back and ended at $US10 ($15.50) per barrel. However, significant damage has been done with the June contract sucked down into this vortex, with knock-ons to the already parlous finances of many oil and gas companies.”
Lomnitzer further outlined that given renewed OPEC discipline and non-OPEC supply cuts, healthier oil prices are expected over the course of the year, with large oil companies such as BP and Shell pricing in at $US45 per barrel and at a long-term price of $US55 per barrel.
“Cuts to supply are harsher and more structural than cyclical in this downturn, potentially robbing oil production of the potential to recover into 2021 and beyond. These cuts will have an enduring effect that lasts beyond COVID-19,” Lomnitzer said.
In addition, Lomnitzer stated that given the scale of the demand shock OPEC+ has done all it can until demand starts to recover.