Fragile oil market recovery

 In Articles

Since the end of April, oil prices are back on the rise. After a free fall of the (WTI) oil price in mid-April, in which there was even a temporary negative oil price for the U.S. oil variant of $40 a barrel, supply and demand are slowly but surely regaining balance. This was also confirmed yesterday by the authoritative International Energy Agency (IEA) when Director Birol published the monthly report on the oil market. 

But the recovery is extremely fragile, according to the IEA director. In the event of a major second wave of infection, the picture could change again.

According to the IEA, there are a number of reasons why the oil market has calmed down. For example, the drop in demand caused by the corona- pandemic and the lockdowns worldwide are less than previously predicted. It was estimated that there would be 29 million barrels less demand per day in April, but this actually came to 25 million barrels per day. Incidentally, this is still about 25% of the global daily demand for oil. In addition, there has also been some change on the supply side. As of 1 May, the OPEC cartel will limit oil production by 9.7 million barrels a day. Moreover, Saudi Arabia recently announced that it will, on its own initiative, further increase this restriction by an additional 1 million barrels per day as of 1 June. 

Non-OPEC countries are also participating in a production limitation. However, this is not entirely voluntary. Especially in the United States, but also in Canada, producers are forced to close (shale) oil wells because pumping up oil is no longer profitable due to the low oil price. Moreover, there is a screaming shortage of storage space for the oil. Non-OPEC production fell by 1.1 million barrels per day in April. According to the IEA this will increase further this month and in June to a lower production of 6.7 million barrels per day. Of this, some 2.8 million barrels a day will be accounted for by the United States by the end of the year. 

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