HAS OIL SUR­VIVED?

Be­hind a ten­ta­tive re­cov­ery is an eas­ing global sup­ply glut, and na­tions be­gin­ning to re­lax lock­down re­stric­tions that have crip­pled oil-in­ten­sive sec­tors like trans­port and man­u­fac­tur­ing

Viet Nam News - - FRONT PAGE - ❱ Benoît Pele­grin

World crude prices have re­cov­ered from last month's col­lapse, prompt­ing some to won­der if the worst is over

LON­DON World crude prices have staged a mod­est re­cov­ery from last month's dizzy­ing col­lapse, prompt­ing an­a­lysts to won­der whether the worst of the 2020 oil cri­sis is over.

The com­mod­ity tanked for the first time into neg­a­tive ter­ri­tory in April, plagued by de­mand-de­stroy­ing coron­avirus, chronic over­sup­ply and a Saudi-rus­sian price war.

West Texas In­ter­me­di­ate crude hit a his­toric low of mi­nus $40.32 per bar­rel on April 20 as sell­ers were forced to pay to off­load the May con­tract amid scarce stor­age ca­pac­ity. Brent North Sea oil then dived as low as US$15.98 on April 22 but did not turn neg­a­tive.

Fast for­ward one month, how­ever, and both oil prices are cur­rently trad­ing at around $35 per bar­rel.

Phoenix from ashes?

"Like a phoenix from the ashes... oil prices have re­cov­ered sig­nif­i­cantly from their lows in April," said Com­merzbank an­a­lyst Eu­gen Wein­berg.

Be­hind the re­cov­ery is an eas­ing global sup­ply glut, and na­tions be­gin­ning to re­lax lock­down re­stric­tions that have crip­pled oil-in­ten­sive sec­tors like trans­port and man­u­fac­tur­ing.

Yet some an­a­lysts warn that the mar­ket re­mains vul­ner­a­ble to a much-feared sec­ond wave of coron­avirus in­fec­tions – and lock­downs.

The deadly pan­demic has so far killed 328,000 peo­ple world­wide and in­fected more than five mil­lion, ac­cord­ing to an AFP tally.

"What about the bot­tom in oil prices: is it be­hind us or ahead of us?" asked Rys­tad En­ergy an­a­lyst Bjornar Ton­hau­gen.

"After the lat­est shut-ins and the news that more pro­duc­tion will be cut in the Mid­dle East, we now see an in­creased pos­si­bil­ity that prices have al­ready reached the bot­tom -- un­less a sec­ond lock­down wave comes."

Prices went into freefall in April as the deadly COVID-19 out­break slammed the brakes on the world econ­omy – and sent en­ergy de­mand off a cliff.

At the height of the mar­ket melt­down, the world was awash with crude, with stor­age stretched al­most to full ca­pac­ity both on­shore and off­shore.

How­ever, the main US oil de­pot in Cush­ing, Ok­la­homa was not over­whelmed at any point.

Re­bal­anc­ing

In an at­tempt to de­fend oil prices and re­bal­ance the oil mar­ket, the OPEC+ al­liance of ma­jor pro­duc­ers led by Riyadh and Moscow agreed in April to slash daily crude pro­duc­tion by 9.7 mil­lion bpd over two months.

The United States, which is the world's big­gest oil pro­ducer, has mean­while curbed the pace of costly shale oil ex­trac­tion – which is un­prof­itable in times of ul­tra-low prices.

"Oil de­mand has bot­tomed out and oil sup­ply from OPEC+ and North Amer­ica is fall­ing sharply," added Wein­berg.

"The oil mar­ket is thus no longer as over­sup­plied as feared.

"Ris­ing de­mand and the mas­sive pro­duc­tion cuts are likely to cause a con­sid­er­able sup­ply deficit in the sec­ond half of the year. The sharply in­creased in­ven­to­ries should then fall no­tice­ably."

The In­ter­na­tional En­ergy Agency (IEA) has fore­cast that global oil de­mand will fall by a record amount this year on coron­avirus – but also added that the worst may well now be over.

OPEC pre­dicted last week that the re­bal­anc­ing of the oil mar­ket would ac­cel­er­ate over the next few quar­ters.

In a fur­ther twist, the WTI front­month con­tract switched this week from May to June – and the move did not spark the same havoc as last month.

Yet traders cau­tion that de­mand will re­main frag­ile, set against the back­drop of a widely fore­cast global deep eco­nomic down­turn sparked by coron­avirus.

"Oil de­mand is on the path to a grad­ual-but-frag­ile re­cov­ery," said PVM an­a­lyst Stephen Bren­nock.

AFP/VNA Photo

The oil price is burn­ing a bit more brightly than a month ago.

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