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Riyadh is helping oil over $ 50

US oil WTI broke the level of $ 50 per barrel for the first time since the beginning of the pandemic last week, which is very good news for American miners. The rise in prices was helped by reports of declining production from Saudi Arabia and the volatile situation in the Middle East. A further price collapse to negative values is highly unlikely at the moment, and investors should look more to higher prices above $ 50.

 

The market ignores other lockdowns

The price of WTI oil has long oscillated around the levels of $ 45-50. Earlier this year, however, the OPEC + oil cartel agreed to extend existing production cuts, and Saudi Arabia intervened even more aggressively. In February and March, it promised to remove another 1 million barrels a day from the market, which was a sufficient signal for the market to grow, which was also supported by the unstable situation in Iran. Saudi Arabia has reaffirmed its strength and indicated that it is willing to calmly control supply in the market itself. It was mainly a reaction to the extension of lockdowns in key European economies such as Germany, France, or Britain, where demand is likely to recover more slowly. At the same time, air transport is far from pre-pandemic levels.

 

Bankruptcies and chances for 2021

However, low oil prices have cost this particular economic sector thousands of jobs and several bankruptcies in some countries. American producers were unable to make a profit and were forced to cut spending, let thousands of workers go, and shut down drilling. Venezuela is also slowly losing one of its main sources of income. Local production is declining and the volume of exports of this raw material reached its lowest level in 77 years last year. The problems were also reflected in the energy sector on the stock markets, which, however, is one of the favorites for stronger growth in 2021.

 

Where growth might end?

Given the current development of oil and its reaction to the recent lockdowns in Europe, we can say with certainty that the worst is over and the market should look at higher prices at the moment. US oil WTI will strongly maintain the level of $ 50 per barrel, which is key to the profitability of US miners. The risks are no longer so great and the probability of lockdowns in the USA or China is very low. Oil has shown that it is not too afraid of further restrictions and, on the contrary, is working with the expectation that demand will tend to grow by the second half of this year.

Saudi Arabia has supported everything with its additional cuts, and unless another price war begins, the price of oil will gradually stabilize. However, stronger growth is also unlikely, as miners will gradually resume production as demand recovers and the situation between supply and demand will level out. The average price of WTI oil is expected to be around $ 60 this year.

Chart: WTI Daily Oil Chart (Source: PurpleTrading cTrader)