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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Oil Jumps 11% On Signs Of Demand Recovery

U.S. benchmark oil prices surged by 11 percent early on Monday to a two-month high of over $32 a barrel amid signs of demand recovery and accelerated production cuts from all oil producers, making a repeat of last month’s negative WTI Crude prices a day before expiry increasingly unlikely.

At 10:00 a.m. EDT on Monday, the WTI Crude June contract expiring on Tuesday was trading at $32.86, up by 11.72 percent on the day, to the highest level since the second week of March. Back then, oil prices had started to slide after Saudi Arabia flooded the market with oil in a price war for market share and demand started crumbling as countries began going into lockdown to curb the spreading of the coronavirus.   

Brent Crude prices were also surging on Monday, by 7.60 percent at $34.93, as producers from OPEC+ and North America signaled accelerated production cuts and/or curtailments in view of the low oil prices, high inventories, and still low oil demand around the world.

However, evidence of recovering oil demand began to emerge over the past week. Last week, the Energy Information Administration reported a crude oil inventory decline of 700,000 barrels for the week to May 8—the first drop in commercial inventories in 16 weeks. In gasoline, the EIA reported an inventory draw of 3.5 million barrels, after a draw of 3.2 million for the previous week, which fueled hopes for demand recovery. Gasoline production averaged 7.5 million bpd, versus 6.7 million bpd a week earlier.   Related: U.S. Shale Could Crush The Oil Market Recovery

Hopes of demand recovery were further stoked by additional easing of the lockdown restrictions in U.S. states and across major European economies, including Italy and parts of the lesser affected areas in Spain.   

U.S. Federal Reserve Chairman Jerome Powell also lent support to hopes of demand recovery, telling CBS’s ‘60 Minutes’ program that “Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year.”

Commenting on Monday’s oil price rally, ING strategists Warren Patterson and Wenyu Yao said:

“Clearly the fundamentals in the market are improving, but we continue to believe that the market is rallying too much too soon, with the risk that further strength will only prolong the supply and demand imbalance.”  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on May 18 2020 said:
    Major bullish factors are supporting a recovery of global oil demand and prices. These bullish factors include a steep decline in US shale oil production estimated at 4 million barrels a day (mbd) by May 10 according to the latest research by the respected US energy expert Philip Verleger, an accelerated easing of the global lockdowns, the implementation of OPEC+-led production cuts, the China factor and the prospect that the global glut is starting to decline possibly pushing the oil market into deficit as early as June.

    Of particular importance is the market realization that the US shale oil has been irrevocably weakened by the coronavirus outbreak and is now a spent force with hardly any influence in the global oil market.

    As a result, US crude oil imports are projected to rise from an estimated 9 mbd in 2019 to 11-12 mbd in the next 2-3 years.

    For ages I have been saying that once the outbreak is contained, the global economy and China’s in particular will behave like a patient who has been quarantined with no food. Once out of the quarantine, his appetite would be rapacious and this is exactly how the global economy and the global oil market will react with oil imports doubling if not tripling to recoup lost demand. Oil prices and demand will recoup all their previous losses with prices eventually hitting $40-$50 a barrel in the second half of this year and touching $60 in early 2021.

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

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