Recovery in new light as price of oil plunges
Oil prices recovered slightly on Friday after plunging 7 percent a day earlier, evidence that crude’s recovery — and that of the wider economy — won’t be smooth or quick after the coronavirus pandemic.
Analysts widely expected oil’s recovery to be choppy, given the uncertainties around vaccine rollouts and OPEC’s decision to tamp down production. But the price collapse this week is likely a market correction, not so much the start of another oil crash, Rystad
analyst Bjornar Tonhaugen said.
West Texas Intermediate, the U.S. crude benchmark, rose by by more than 2 percent Friday to settle at $61.42, as the European Union offered reassurances of the
safety of AstraZeneca’s vaccine after several member countries temporarily halted its use.
“Time will tell whether this is the start of a downwards trend for a while, but we doubt it,” Tonhau
gen said. “A correction was overdue, as physical crude demand is sluggish owing to maintenance season and weak refinery margins still.”
Oil’s plunge this week underscored just how dependent the economic recovery — and thereby oil’s rebound — is on the successful rollout of vaccines that could bring an end to the pandemic.
Vaccine distribution has not been smooth and will need to overcome skepticism to reach herd immunity.
Despite skittish oil markets, oil and gas companies put nine drilling rigs into operation this week, the best showing since last month’s winter storm caused the largest disruption to U.S. crude production in history. The number of operating rigs in the U.S. rose to 411, according to oil-field services company Baker Hughes and research firm Enverus, which provide the weekly tally.
The rig count, a leading indicator of the nation’s oil and gas production, had been recovering from the pandemic-driven oil bust in recent months. Crude prices climbed above $65 this month as vaccines reached more people, a third federal stimulus package was passed and OPEC extended production cuts.
Still, the industry has a little more than half of the 772 rigs that were operating a year ago, just as the pandemic took hold across the U.S.
Even though oil companies can make a healthy profit at current prices, they’re not rushing back into the field to drill new wells, analysts said. Many are eager to display financial discipline to woo Wall Street investors back into energy, the worst-performing sector of the stock market last year.
The Permian Basin of West Texas — the nation’s most productive shale play — added four rigs this week, putting the count at 216. The Eagle Ford Shale of South Texas gained three rigs, moving the count up to 32, while the Haynesville Shale of East Texas held steady at 45 rigs.
March oil output is expected to be down slightly — about 75,000 barrels per day less — from prestorm projections, according to IHS Markit. The market research firm expects any losses from the winter storm will be offset by a rising number of new wells this quarter, meaning that the storm will have no significant impact to 2021 production forecasts.