• 3 minutes War for Taiwan?
  • 7 minutes How China Is Racing To Expand Its Global Energy Influence
  • 10 minutes Is it time to talk about Hydrogen?
  • 7 hours U.S. Presidential Elections Status - Electoral Votes
  • 16 hours “Cushing Oil Inventories Are Soaring Again” By Tsvetana Paraskova
  • 59 mins Tesla Semi
  • 13 hours WTI / ​​​​​​​Price Forecasting 
  • 5 hours Mail IN Ballot Fraud
  • 12 hours “Did Authorities Do Enough To Find Out Why Oil Prices Went Negative?” By Irina Slav – Nov 26th
  • 2 hours “Consumers Will Pay For Carbon Pricing Costs” by Irina Slav
  • 2 days Biden's Green New Deal- Short Term - How Will He Start to Transition Out Of Crude?
  • 3 days Supreme Court rules against Cuomo's coronavirus limits
  • 2 days America Could Go Fully Electric Right Now
  • 2 days Saudi Arabia Seeks to Become Top Hydrogen Exporter
  • 12 hours Deceptions Revealed about the “Nord Stream 2 Pipeline” and Germany

Breaking News:

Volkswagen Readies Compact EV For 2023

Robert Rapier

Robert Rapier

More Info

Premium Content

Three Reasons Oil Prices Are Bouncing Back

Oil prices have come a long way since the deep dive into negative territory a month ago. One could argue that the price of West Texas Intermediate (WTI) is now $70/bbl higher than it was a month ago, when it settled at -$37.63 on April 20. Although the negative price seen near the expiration of the May contract was a brief anomaly, the June contract also dipped down to near $10/bbl. But instead of diving back into negative territory, the June contract steadily gained strength throughout the month of May, expiring above $30.

So, what has changed in the oil markets in the course of a month to so dramatically change the outlook? We can attribute this to at least three factors.

The first is that the U.S. oil rig count is falling at the fastest rate on record. From March 13, the rig count was cut in half in just over six weeks and is now down 65 percent since that date.

The only comparable period was when oil prices crashed in 2014, but it took nearly six months at that time for the rig count to be halved.

The falling rig count is an indicator that future oil production in the U.S. may be lower than it otherwise would have been. However, the price crash has also had a rapid impact on current U.S. oil production.

Related: A Nightmare Scenario For Offshore Oil At the end of March, the U.S. was still producing 13 million barrels per day (BPD) of oil. By mid-May, that had dropped more than 10 percent to 11.5 million BPD. By comparison, following the 2014 oil price crash, oil production only fell by 1.1 million BPD, and that took a year to happen.

The only other time the U.S. has experienced a rapid 1.5 million BPD production decline was in the aftermath of Hurricane Katrina in 2005, but production quickly returned to normal afterward.

The third factor that has helped oil prices rebound is that demand has shown signs of recovery.

According to the Energy Information Administration (EIA), in early March U.S. consumption of petroleum products had reached 21.9 million BPD. That was one of the highest weekly demand numbers on record.

Related: Oil Prices Are Unlikely To Break $40 This Year

A month later, with most of the country under stay-at-home orders, demand had fallen to 13.8 million BPD. That was only about 10 days before the May contract took that deep dive into negative territory.

But, as some states have let stay-at-home orders expire, and as the traditional summer driving season approaches, demand has rebounded. By the second week of May, demand for petroleum products had climbed back above 16.5 million BPD. This is still nearly 20 percent below normal for this time of year, but it is a positive sign for oil producers and refiners.

Finally, although these factors are specific to the U.S., it was the U.S. that contributed the most to the petroleum oversupply problem in recent years. It is also certain that a similar dynamic has played out in many countries, and in conjunction with production cuts by OPEC and its partners.

So, while the oil industry still faces challenges in the face of weak demand, it looks like the worst is over for now.

By Robert Rapier 

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on June 01 2020 said:
    Actually four powerful bullish factors are behind the bouncing back of oil prices. The first is China’s huge thirst for oil as judged by the rise of Chinese oil imports even above 2019 levels in spite of the coronavirus outbreak.

    The second factor is the accelerating easing of the global lockdown. The third is the impact of OPEC+ production cuts.

    And the fourth factor is that US oil production (primarily shale oil) lost 4 million barrels a day (mbd) by May 10 according to US energy expert Philip Verleger. The US shale oil industry will emerge so emaciated from the coronavirus ordeal that US crude oil imports could be expected to jump from 9 mbd in 2019 to an estimated 11-12 mbd in the next two years.

    Still one bearish factor could be lurking behind the scenes, namely a resumption of trade war between the United States and China.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News