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Oil prices will have downward pressure: SHCP

Oil prices will have downward pressure, according to forecasts by the SHCP.

In the General Economic Policy Pre-Criteria, the SHCP indicated that as of March 26, the price of the Mexican blend was 59.4 dollars per barrel (dpb), which represented an increase of 67.2% compared to that registered in September of 2020.

Although oil prices are currently above expectations for 2021, the Energy Information Administration (EIA) expects that in the coming months they will be under downward pressure due to the increase in US production, high levels of world inventories and surplus production capacity, especially of the OPEC + member countries.

Likewise, the SHCP stated that the increase in oil prices could begin to slow down the growth of demand in developing economies.

Additionally, there is uncertainty regarding the US sanctions against Iran, due to the willingness of the new US Administration to rejoin the Joint Comprehensive Plan of Action.

Oil prices

Like the real economy, since the end of 2020 oil prices have shown an accelerated recovery, in such a way that in January 2021 they reached pre-pandemic levels.

Above all, the recovery was due to an improvement in the fundamentals of supply and demand, extensive fiscal and monetary stimulus globally and the dynamism of the economy of China, the largest importer of raw materials in the world.

On the supply side, OPEC + members played a crucial role by cutting their production by 7.7 million barrels per day (Mbd) between August and December 2020.

In addition, OPEC + maintained constant market monitoring and adjusted its cut to 7.2 Mbd in January 2021, instead of the 5.8 Mbd originally planned.

Although moderate increases in production were approved between February and April, Saudi Arabia voluntarily pledged to reduce its supply by 1 Mbd during these months.

On the demand side, increases and positive expectations have been generated thanks to the economic reactivation expected by the progress of the different vaccination campaigns against COVID-19 worldwide.

In this sense, as of March 26, 2021, the prices of WTI and Brent were 61.0 and 63.7 dollars per barrel (dpb), higher by 65.9 and 62.8%, respectively, in relation to September 8, 2020, date of delivery of the General Criteria for Economic Policy 2021.

 

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