Oil makes gains but BP forecasts lower prices for decades

Oil prices built by more than 2% on Monday based on confidence in OPEC+ members complying with a record production cuts agreement and reported signs of rising oil demand.

However, the gains were tempered by lingering fears of a fresh wave of COVID-19 infections as lockdown measures around the world eased, along with BP’s decision to cut price forecasts by 30% in the wake of the pandemic.

The oil giant expects Brent crude to average US$55 a barrel from now until 2050 and accordingly revised down the value of its assets by up to $17.5 billion. This comes off the back of BP’s announcement to cut 10,000 jobs after oil prices collapsed earlier this year.

At the peak of the COVID-19 crisis, oil prices bottomed at below $20 per barrel having been at $66 at the start of 2020. Yesterday, Brent crude gained 2.6% to settle at $39.72 and US West Texas Intermediate rose by 2.4% to $37.12.

Prices spiked after the energy minister of the United Arab Emirates expressed confidence that OPEC+ countries with poor previous compliance to agreed cuts would meet their commitments to the extended 9.7 million barrels per day cuts through to July end.

“That seemed to take away some of the market’s negativity,” said Phil Flynn, senior analyst at Price Futures Group. “It’s fear about the coronavirus versus the reality of what’s happening on the ground.”

Reports of 79 new COVID-19 cases in Beijing after two months with no new infections, plus over 25,000 new reported cases in the US on Saturday alone weighed on oil market sentiment despite of the gains made.