Economic turmoil associated with the COVID-19 pandemic has had wide-ranging and severe impact on oil market, with crude prices plunging to multi-year lows. In the recent weeks, however, the beaten-down market has shown signs of stabilization, and some investors already see a light at the end of the tunnel. They hope for gradual recovering of global oil demand as many countries start to reopen their economies, while the new OPEC+ deal should help to reduce crude oversupply. Meanwhile, analysts of Bloomberg Intelligence (BI) don’t agree and believe the oil market has got a long and bumpy road to balance ahead. They argue that underlying anemic prospects for global oil demand and bloated oversupply – amid rapidly filling storage and rising oil-carrier charter rates – suggest Brent may follow a similar downward trajectory to the WTI May contract, unless demand recovers. With low visibility over the timing of lockdowns being lifted, oil-price volatility is likely to persist. Besides, the latest historic OPEC+ pact aimed to curb crude supply by 9.7 mn barrels a day probably won't be enough to rebalance the market, given the extent of the Covid-19-driven decline in oil demand. Consensus estimate for Brent seems optimistic Brent is expected to reach $40 a barrel by 4Q, according to median consensus estimate. The expectation is for a further rise next year, with an average of $48 a barrel in 2021 vs. $38 in 2020. While oil demand is likely to show slow signs of recovery following the easing of strict lockdown measures in the world's largest economies, BI believes the price of crude is likely to be kept in check by sustained oversupply that's testing global storage capacity. OPEC+ cuts of 9.7 mn barrels a day came into effect in May, though these are unlikely to be of the magnitude required to bring the market back to balance any time soon. OPEC strategy plays big role in driving oil sentiment The 2014 oil-price slump followed years of rising unconventional oil supply in the US, and Saudi Arabia's strategy to maximize production and retain market share. At the end of 2016, with a drastic shift in strategy, Saudi Arabia led OPEC and some non-OPEC producers (known as OPEC+) – including Russia – to jointly curb oil output and ease the global glut. The decision was a result of a sustained low oil price that weighed heavily on the budgets of the oil-dependent member nations, spurring unrest in some of the countries. Despite uneven compliance with the accord, the pact managed to keep crude above $50 a barrel for the most part until March this year. A spectacular end to the OPEC+ pact then coincided with the coronavirus-driven hit to oil demand, resulting in another slump to below $30 a barrel. OPEC+'s return to supply management with a historic production cut of around 10 mn barrels a day may initially be seen as a positive for oil prices, though may not be enough to balance the market. According to BI calculations, OPEC+ may need to immediately cut 25 mn barrels a day to bring the market back into balance this quarter. These calculations assume a big shock to oil demand in 2Q – down at about 78 mn barrels a day for the quarter – gradually recovering to about 95 mn barrels at the end of the year. BI analysts also see potential obstacles to OPEC+ deal as Libya and Iran remain wild cards. If tensions in Libya were to ease, the country's oil production could quickly recover to more than 1 mn barrels a day vs. about 90,000 barrels a day in April, they believe. Output has been suppressed amid the conflict between military commander Khalifa Haftar and the UN-backed government in Tripoli. Additional production from Libya would exacerbate the current oversupply, providing another bearish indicator for crude prices. Output from Iran has also dwindled in recent months, and the country's production remains well below its potential, primarily because of US sanctions. Pressure on Brent too, unless demand recovers While the record daily drop and negative prices in WTI's May contract may initially be seen as a glitch for that contract only, it exposes the underlying oversupply in the oil markets amid a meteoric hit to demand driven by the Covid-19 outbreak and lockdowns in the world's largest economies. Brent has so far been relatively shielded by its seaborne nature – as supertankers can be utilized – making it less exposed to onshore storage. However, unless oil demand shows any notable recovery, further bloating oversupply and filling total storage could take Brent down a similar route as WTI. European oil demand is poised to drop by an unprecedented 3.5-7 mn barrels a day or about 25-50% in 1H, according to BI scenario analysis. This means significant storage capacity may be needed to avoid a Brent-price collapse similar to the slide in WTI on April 20. Before the coronavirus pandemic took hold, European demand for refined products was already waning at an annual rate of about 1%, mostly due to a mix of macroeconomic and structural factors. Italian demand, for example, decreased about 9% in 2019. Transportation makes up more than 60% of European oil demand, which means extreme travel restrictions will have a large negative impact. Tepid oil-demand recovery expected in 2021 About 77% of respondents to BI survey conducted in late March said they expect the level of global oil demand to be 100 mn barrels a day or lower in 2021, suggesting they aren't expecting a V-shaped recovery. Global oil demand was about 100 mn barrels a day in 2019, so if this scenario unfolds, it implies the coronavirus will wipe out two years of growth. For the sake of comparison, oil demand would have climbed to about 103 mn barrels a day in 2021, based on underlying trends prior to the Covid-19 pandemic, NI calculations show. Since 2000, annual global oil demand has increased by about 1.46 mn barrels a day on average – a compound rate of about 1.4%.