Oil prices dropped early on Friday as profit-taking and a strengthening U.S. dollar put a stop to this week’s rally that saw prices hitting a six-week high on Thursday.
As of 10:14 a.m. EDT on Friday, WTI Crude was trading down below $64 a barrel, at $63.43, down by 2.32 percent. Brent Crude prices were down by 1.87 percent on the day at $67.26.
On Thursday, oil prices had jumped to their highest levels in six weeks as a brighter outlook on the American economy and oil demand offset bearish demand prospects from the COVID crisis in India.
But on Friday, the rally took a breather as market participants turned to profit-taking. A rising U.S. dollar also weighed on oil prices on Friday, as a stronger U.S. currency makes crude buying more expensive for holders of other currencies.
Continued concern over the worsening COVID crisis in India outweighed the bullish factors on Friday, but oil prices were still on track to post a monthly gain of 6-7 percent in April—the fifth rise in monthly oil prices in the past six months.
On Friday, oil was dragged down by concerns that the health crisis in India could offset some of the demand rebound elsewhere. While the United States and parts of Europe such as the UK are already re-opening and seeing increased economic activity, travel, and consumer revenge spending, major economies such as India and Brazil are suffering under the COVID resurgence.
The situation in India, the world’s third-largest oil importer, is particularly concerning. Some analysts, such as Rystad Energy, warned this week that the COVID crisis in India will result in a surplus of oil supply of as much as 1.4 million barrels per day (bpd) in May.
Goldman Sachs, however, continues to believe that the market will take India’s crisis in its stride and will realize the biggest jump ever over the next six months.
By Tsvetana Paraskova for Oilprice.com
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India’s crisis might slow down slightly the growth rate in the global oil demand but this will be more than offset by the wider opening of the EU economies and the positive outlook of the US economy not to ever forget the huge driving force of China’s insatiable thirst for oil. China’s oil imports are projected to rise this year from average 11.67 million barrels a day (mbd) in 2020 to 14-15 mbd in 2021. This alone more than offsets any decline in India’s imports.
That is why I continue to project that global oil demand will return to pre-pandemic level of 101 mbd by the middle of this year with Brent price hitting $70-$80 in the third quarter of 2021 and averaging $65 for the year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London