WEEKLY ENERGY RECAP: Demand recovers

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. (Reuters)
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Updated 17 May 2020

WEEKLY ENERGY RECAP: Demand recovers

  • The physical crude market was still weighed down by millions of barrels stored on tankers worldwide

Brent finished at $32.50 per barrel capping a third consecutive week of gains while WTI topped $29.43 per barrel which was close to a two-month high.

The Brent/ WTI spread has narrowed significantly to $3.07 per barrel, which makes US crude oil exports less competitive to other Brent-related Atlantic basin barrels.

Oil gained despite bearish uncertainties surrounding COVID-19 as economic uncertainty kept market sentiment cautious.

The physical crude market was still weighed down by the millions of barrels being stored on tankers worldwide.

There are more than 200 million barrels of crude oil and petroleum refined products in floating storage as reported by S&P Global Platts.

Still, the crude oil demand outlook is improving as governments ease lockdown measures.

Strong signs of compliance with OPEC+ supply cuts added to the improving market sentiment, especially with large produces within OPEC having already deepened June output cuts which could yet be extended further.

This was in addition to hefty output cuts from producers outside OPEC+ from the US, Canada, Brazil and Norway.

The US rig count continued to fall for the ninth consecutive week, dropping by 34 to 258 rigs, which implies a further imminent decline in the US crude oil production.

China refining capacity posted the first uptick since the coronavirus outbreak after increasing to 13.16 million bpd in April. It is expected to further increase during May and June as the country begins to emerge from a months-long lockdown.

This has given oil traders some hope that demand will begin to recover over the coming weeks keeping in mind that China is
the largest crude oil importer in the world.

The oil demand outlook has improved, particularly in Asia, driven primarily by rising gasoline consumption as citizens get back in their cars.

European bank ramps up stimulus package

Updated 05 June 2020

European bank ramps up stimulus package

FRANKFURT: The European Central Bank approved a bigger-than-expected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War II.

Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by €600 billion ($674 billion) to €1.35 trillion and that purchases would run at least until end-June 2021, six months longer than first planned.

It also said it would reinvest proceeds from maturing bonds in its pandemic emergency purchase scheme at least until the end of 2022.

ECB President Christine Lagarde scotched speculation that the bank could follow the US Federal Reserve in buying sub-investment grade bonds, saying that option was not discussed by policymakers.

The announcement, which comes just weeks after Germany’s Constitutional Court ruled that the ECB had already been exceeding its mandate with a longstanding asset purchase program, prompted a rally in the euro and bond markets.

“Today’s easing measures were another illustration that the ECB means business and stands ready to do whatever is necessary to help the euro area survive the corona crisis in one piece. The ECB will do its part, and it hopes the governments will do their part,” Nordea analysts said in a note.

The bank dramatically revised downward its baseline scenario for euro zone output this year to a contraction of 8.7 percent from the modest 0.8 percent rise it had forecast only in March.

“The euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus pandemic and the measures taken to contain it,” Lagarde said.

She said she was confident that a “good solution” could be found on the legal stand-off with Germany’s top court.