Crude Oil Futures Snap Back

Oil demand is coming back faster than expected
India has already achieved 85% of demand compared to 2019
OPEC continues to cut output
Energy Report

Energy Report

 

The Phil Flynn Energy Report 

Great Expectations

Part of the story with the recent snap-back in oil is the fact that demand keeps coming back faster than expectations. The Wall Street Journal points out that, "U.S. crude's 94% advance this quarter puts oil on track for its most significant quarterly percentage gain in 30 years." Fears that the Covid-19 shutdowns would keep oil demand down for years is proving not to be true. Now an official from the International Monetary Fund is saying that they expect that oil will average $40 to $50 a barrel this year. Stocks and oil demand have come back faster than anticipated, and even an uptick in U.S. coronavirus infections should not stop the global trend of rising demand. China's market is back to previous levels, and it was reported that China's crude oil imports jumped 19.2% on the year to an all-time high at 11.34 million barrels per day (BPD) or 47.97 million metric tons. India is also seeing demand coming back faster than the trade expected.

India's Oil Minister Dharmendra Pradhan said at the Bloomberg NEF summit that "India, the third-biggest oil consumer, expects fuel demand to return to normal earlier than projections by the International Energy Agency (IEA) and OPEC. If you look at the trend of the past few weeks, I'm confident that by the end of the second quarter, demand will be as usual," Pradhan went on to say that, "At the end of June, we have already achieved 85% of our demand compared to June 2019.”

In addition to production cuts, low prices, and help from OPEC have put the market closer to balance. Even the talk of a return of Libyan oil should not stop the normalization of the global oil market. Compliance is critical and Russia and Saudi Arabia continue to press OPEC laggards into full compliance. It seems to be working as we see better agreement from Iraq and Nigeria.

According to reports from tanker tracking company Petro Logistics, Reuters reports OPEC has cut oil output in June by 1.25 million BPD from May levels as it works to implement a supply restraint agreement with Russia and other allies. OPEC and its allies agreed to cut supply by a record 9.7 million BPD from May 1 to offset an oil price and demand slump triggered by the coronavirus crisis. OPEC's share of the cut is 6.084 million BPD. 

In an email, Petro-Logistics said, "Excluding Iran, Libya, and Venezuela, which are not part of the curtailment agreement, OPEC supply remains about 1.55 million BPD away from full compliance. Iraq, Nigeria and Kuwait are the main countries that have lowered their supply since May, with more limited cuts by Saudi Arabia, the UAE, and Angola.”

The pressure continues. Reports say that Saudi Crown Prince Mohammed bin Salman, in a phone call with Nigerian President Muhammadu Buhari, discussed the OPEC+ pact and issues relating to compliance. Yet Covid-19 worries remain.  

Natural gas has bounced back from the lowest price since August 1995! Summer! Air Conditioning Demand! Cheap gas! Life is good.

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.