WEEKLY ENERGY RECAP: Fears of second pandemic wave move crude market

WEEKLY ENERGY RECAP: Fears of second pandemic wave move crude market
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US. (Reuters/File)
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Updated 21 June 2020

WEEKLY ENERGY RECAP: Fears of second pandemic wave move crude market

WEEKLY ENERGY RECAP: Fears of second pandemic wave move crude market

Oil rebounded this week with Brent crude recovering to above $42 and WTI following the same trajectory, finishing the week at $39.75 per barrel.

The recovery came on the heels of the first weekly decline in six weeks amid a huge sell-off in the futures markets that coincided with a major equities retreat.

The monthly reports of both the International Energy Agency (IEA) and OPEC, show OECD commercial oil stocks at historical highs above the five-year average. They also indicated a sharp downward movement in petroleum refined products prices. 

However, Brent crude managed to recover to above $42 with WTI following the same trajectory, finishing the week at $39.75 per barrel.

Both OPEC and IEA believe oil demand may take longer than expected to recover to pre-pandemic levels of roughly 100 million barrels per day (bpd) amid a sluggish expected recovery in the energy industry and wider economy.

As a commodity that often trades as much on sentiment as fundamentals, it is no surprise that money managers are factoring in fears of a second wave of the coronavirus on global demand.

The Brent crude price market structure has moved into “backwardation” sooner than expected, which describes a situation when the spot price of oil is higher than the forward price. Such a market encourages spot market trading activity, which will play a major role in depleting historically high levels of oil and petroleum refined products inventories globally.

The market for Brent crude flipped into backwardation despite the existence of some 100 million barrels of oil n floating storage. 

The oil market is unlikely to see large onshore storage declines before these floating supplies are consumed and the market slowly rebalances.


IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
Updated 34 min 6 sec ago

IMF chief sees ‘high degree of uncertainty’ in global outlook

IMF chief sees ‘high degree of uncertainty’ in global outlook
  • IMF had rapidly increased concessional financing to emerging market and developing economies

WASHINGTON: The head of the International Monetary Fund on Monday said the global lender needed more resources to help heavily indebted countries, citing a highly uncertain global economic outlook and a growing divergence between rich and poor countries.
IMF Managing Director Kristalina Georgieva, who has long advocated a new allocation of the IMF’s own currency, Special Drawing Rights (SDRs), said doing so now would give more funds to use address both the health and economic crisis, and accelerate moves to a digital and green economy.
Under outgoing President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a new SDR allocation, a move akin to a central bank printing money, since it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.
Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.
Andersson, the first European to head the International Monetary and Financial Committee in more than 12 years and the first women, started her three-year term in the role on Monday.
Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donations by member countries of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.
“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.
She said a new SDR allocation had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move. A possible sale of gold from the IMF’s reserves would have “some opportunity costs” for the IMF, but would be up to members, she said.
She said she expected the Group of 20 major economies to extend the current moratorium in official debt service payments by the poorest countries, now slated to end in June, but much would depend on the pace of vaccinations in coming months.