Oil rises above $40 as demand recovers
Oil eclipsed $40 a barrel in New York on Friday, extending a slow but steady rise that’s been fueled by a pick-up in demand and could signal a reawakening for U.S. shale production.
Two of the world’s biggest commodity trading houses, Vitol Group and Trafigura Group, said global oil demand is recovering at a rapid pace this month, while Saudi Energy Minister Prince Abdulaziz bin Salman also said he sees encouraging signs of a consumption recovery.
The rally allows the industry some breathing room on its high debt burden, giving confidence to lenders and investors as U.S. shale seeks to rebuild after the worst price collapse in a generation. But with producers planning to turn on the taps once again, that could also be short-lived.
“To a certain degree producers will come back,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “It’s not the sweet spot by any stretch of the imagination,” he added, but “(consumption) will come back.”
U.S. producer Continental Resources Inc. said this week it will start bringing back some of its shut-in oil production next month following EOG Resources Inc.’s pledge to accelerate output in the second half of the year.
An agreement to curb production by OPEC and other oil-producing countries, known as OPEC-plus, has helped spur price recovery, with most nations abiding by their commitments. Even OPEC’s habitual quota cheat, Iraq, said it will implement its agreed on cuts in full this month.
OPEC-plus is “on the right track” to rebalance the global oil market, but it still has “a long way to go,” Prince Salman said Thursday at the group’s Joint Ministerial Monitoring Committee. He said the next two weeks will be “critical” for OPEC-plus to demonstrate all countries are adhering to the cuts.
U.S. oil production has also fallen sharply since March, helping to cut market oversupply and contributing to the price rebound. Data from the Energy Information Administration showed output fell for an 11th straight week to just above 10 million barrels a day last week, down from 13 million barrels a day early this year.
Still, a potential resurgence of the coronavirus is clouding the oil industry’s long-term outlook. Traffic in Beijing, for example, has plunged as authorities battle a fresh outbreak, and some U.S. states are still seeing cases surge.