WEEKLY ENERGY RECAP: Breaking through $40 oil

WEEKLY ENERGY RECAP: Breaking through $40 oil
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Updated 05 July 2020

WEEKLY ENERGY RECAP: Breaking through $40 oil

WEEKLY ENERGY RECAP: Breaking through $40 oil
  • The second half of the year may witness an even higher average price

Brent crude oil rebounded to a near 20-week high at $42.80 per barrel as WTI also rose to $40.32 per barrel.

Brent averaged $40 per barrel for the month of June, almost the same as for the entire first half of the year.

Oil prices have moved in a narrow band for most of the past two months as OPEC+ output cuts achieved the desired goal of bringing stability to a market threatened by volatility.

Now that another price plunge of the kind seen in April appears unlikely, the second half of the year may witness an even higher average price.

The second half of 2020 got off to a positive start for oil exporters as global demand started to recover and floating storage also began to deplete. Moreover, positive economic and jobs data from the US added to the upward momentum, more than offsetting worries about the surge in coronavirus cases in the world’s largest economy and largest consumer of crude oil.

The US Energy Information Administration reported the first drop in crude oil inventory data in four weeks. However, stocks still stand at 15 percent above the five-year average for this time of the year at 533.5 million barrels. US refineries continue to operate at a low capacity of 75.5 percent despite the supposedly “high” demand summer for gasoline.

China crude oil imports reflected an increase in buying which coincided with an improvement in the manufacturing purchasing managers’ index (PMI), which followed the easing of lockdowns.

Such positive global manufacturing data was made possible by the OPEC+ output cuts which helped to balance the market.

Saudi Arabia has led from the front in making good on its commitments to cut output. It all bodes well for the second half of 2020.


WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range
Updated 24 January 2021

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

Oil prices have been stable since early January, with Brent crude price hovering around $55. Brent crude closed the week slightly higher at $55.41 per barrel,
while West Texas Intermediate (WTI) closed slightly lower at $52.27 per barrel.

Oil price movement since early January in a narrow range above $50 is healthy, despite pessimism over an increase in oil demand, while expectations of US President Joe Biden taking steps to revive energy demand growth are
still doubtful. The US Energy Information Administration (EIA) reported a hike in US refining utilization to its highest since March 2020, at 82.5 percent. The EIA reported a surprise weekly surge in US commercial crude stocks by 4.4
million barrels. Oil prices remained steady despite the bearish messages sent from the International Energy Agency (IEA), which believes it will take more time for oil demand to recover fully as renewed lockdowns in several countries weighed on oil demand recovery.

The IEA’s January Oil Market Report came as the most pessimistic monthly report among other market bulletins from the Organization of the Petroleum Exporting Countries (OPEC) and EIA. It forecast oil demand will bounce back to 96.6 million bpd this year, an increase of 5.5 million bpd over 2020 levels.

Though the IEA has lowered its forecast for global oil demand in 2021 due to lockdowns and vaccination challenges, it still expects a sharp rebound in oil consumption in the second half of 2021,
and the continuation of global inventory depletion.

The IEA reported global oil stocks fell by 2.58 million bpd in the fourth quarter of 2020 after preliminary data showed hefty drawdowns toward the end of the year. The IEA reported OECD industry stocks fell for a fourth consecutive month at 166.7
million barrels above the last five-year average. It forecast that global refinery throughput is expected to rebound by 4.5 million bpd in 2021, after a 7.3 million bpd drop in 2020.

The IEA monthly report has led to some short term concern about weakness in the physical crude spot market, and the IEA has acknowledged OPEC’s firm role in stabilizing the market.

Controversially, the IEA believes that a big chunk of shale oil production is profitable at current prices, and hence insinuated that shale oil might threaten OPEC market share.

It also believes that US shale oil producers have quickly responded to oil price gains, winning market share over OPEC producers. However, even if US shale oil drillers added more oil rigs for almost three months in a row, the number of operating rigs is still less than half that of a year ago, at 289 rigs.

The latest figures from the Commodity Futures Trading Commission show that crude futures “long positions” on the New York Mercantile Exchange are at 668,078 contracts, down by 18,414 contracts from the previous week (at 1,000 barrels for each contract).