Coronavirus oil price impact will be short-lived
The rapidly spreading coronavirus outbreak has hit oil prices in the last week as concerns have risen over a global economic slowdown and a reduction in demand, but our mid-run forecast of US $55-65 bbl for Brent Crude remains intact. Here’s why:
The technological innovation of fracking regenerated the once near-dead Permian basin, and released huge reserves in the Bakken field. The Permian is now the second most productive oil field in the world thanks to the fracking innovation. This places the US firmly alongside Russia and OPEC in setting the global oil price.
As oil prices enter the US $40-50 bracket, OPEC will cut its output to support the price. The US shale producer have shown themselves to be swing producers, with the ability to switch off production for extended periods of time when the price falls too low for them to bear. So, it seems very likely that though the oil price may break below US$ 55 bbl for a period, and do so dramatically, it will return to the US$ 55 -65 range. In our view, the trough(s) will be short-lived, as indeed the recent spikes have been, for much the same reasons.
