Oil prices rebound slightly, but likely to trend lower amid headwinds

Oil prices rebounded a touch on Friday, with the commodity coming close to breaking above $40 a barrel, but the bounce was short-lived and the market is expected to trend lower amid a myriad of macroeconomic headwinds.

Brent crude managed to tick above $39 a barrel on Friday, but the benchmark eventually sunk lower to trade at $38.82, up 27 cents, at the time of publication. Meanwhile, the US West Texas Intermediate (WTI) slipped 0.5% to $36.16 a barrel.

Barclays ups oil price forecast

Despite disappointing global economic forecasts, weak demand and concerns about oversupply, analysts Barclays raised their 2020 oil price forecast for Brent crude by $4 to $41 a barrel and believe that WTI will trade at an average of $37 this year.

However, analysts at the UK-based bank admitted that prices could fall over the near-term, with the stability of the market highly dependent on consumer behaviours.

Barclays also admitted that renewed fears over a second-wave of coronavirus cases emerging as the world begins to emerge from government-imposed lockdowns will keep prices subdued in the coming months.

‘As we mark to market our [second quarter] estimates and account for a potentially larger [second half] deficit, we raise our 2020 oil price forecasts by $4/b but remain cautious with respect to the curve over the near term,’ Amarpreet Singh, vice president of oil strategy at Barclays, said in a research note on Thursday.

WTI steadies after losses

Having stalled mid-week below $39.50, the WTI price dropped sharply yesterday, according to Chris Beauchamp, chief market analyst at IG.

‘Declines have been stemmed for now above the 100-day SMA ($34.92), but a further drop targets $31.00 and then $28.33 the rising 50-day SMA,’ he said.

‘Today’s price action will be vital, with a bounce towards $38.00 that creates a lower intraday high likely to create more selling pressure,’ Beauchamp added.

OECD warns of 'tightrope walk to recovery'

Earlier this week, the Organisation for Economic Co-operation and Development (OECD) said that the global economy faces a ‘tightrope walk to recovery’.

With little prospect of a vaccine becoming widely available this year, and faced with unprecedented uncertainty, the OECD presented two equally likely scenarios – one in which the virus is brought under control, and one in which a second global outbreak hits before the end of 2020.

‘If a second outbreak occurs triggering a return to lockdowns, world economic output is forecast to plummet 7.6% this year, before climbing back 2.8% in 2021,’ the OECD said.

‘At its peak, unemployment in the OECD economies would be more than double the rate prior to the outbreaks, with little recovery in jobs next year.’

‘If a second wave of infections is avoided, global economic activity is expected to fall by 6% in 2020 and OECD unemployment to climb to 9.2% from 5.4% in 2019,’ the OECD added.

How to trade commodities with IG

Looking to trade the Brent crude and other commodities? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

1. Create an IG trading account or log in to your existing account
2. Enter ‘Oil – Brent Crude’ in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade