SUMMARY
So Far the Sector has Performed Better than Might Have Been Expected
World Economy and Oil Prices
The International Monetary Fund (IMF) in its April economic outlook, forecast a contraction of 3% for the world economy this year but have since lowered it to a contraction of 4.9% for this year but with 5.4% growth for next year. The IMF warns of a crisis unlike anything the world has ever seen before. As restrictions ease, the path to economic recovery is uncertain with threats of a second wave of the virus, the OECD in its latest June outlook has presented growth rates for both single hit and double hit scenarios.
We have taken a more pessimistic view – closer to the OECD single hit scenario - by assuming a decline of 6.3% this year followed by 4.9% recovery next year. Importantly in both cases an asymmetric recovery is envisaged. While the pace of recovery may be strong initially there are some industries – such as aviation – which could take a long time to recover and some people who find it difficult to find employment having lost it during the pandemic.
We have assumed that the OPEC basket price would average $42.5/bbl in the current quarter, up from $26.5/bbl in the second quarter. By the fourth quarter of this year it is assumed that the price would average $45/bbl and would still be around $45/bbl by the fourth quarter of next year. By 2024, the price would average $50/bbl compared with $41.5/bbl for this year as a whole.
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