How is oil doing?
Crude oil hit a 4-month high last week aided by more demand in gasoline, production cuts, and a higher-than-predicted U.S. jobs record. The caveat is that the jobs data has been a major market boost in the last few weeks as it shows signs of a recovering economy. However, analysts nevertheless anticipate oil to face resistance to any further profits. “Oil has carried the burden on recovery and demand, and it’s no longer clear whether or not that would hold into August and September,” Andrew Lebow, senior associate at Commodity studies organization, gave his views on Bloomberg.
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Supply questions
OPEC+ scheduled to ease production cuts starting in August, and sources informed Reuters that the organization will likely refrain from an extension. Saudi Arabia also reportedly placed a strain on Nigeria to improve its compliance. Last week, Russian Energy Minister Alexander Novak reiterated that role “We will have a partial resumption of the unprecedented cuts starting from Aug. 1.”
Russia’s oil exports to Europe came to a two-decade low. Russia is about to reduce oil exports to Europe to just 900,000 BPD in July, the lowest stage to Europe since 1999, as supplies from somewhere else continue to benefit from its shortage. U.S. oil has gained a foothold. U.S Shale oil producers have been faced with tightened credit by banks which could hurt the oil production capacity of the United States.
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There is also talk of Libya, Saudi Arabia, and Kuwait restarting production. Traders believe if supply comes back from these areas, prices cannot reach the $50 mark. Venezuela’s oil production declined by 32%. Petróleos de Venezuela, S.A’s oil production fell through 32 percent to 422,000 BPD in June, the sixth consecutive month of declines. Political tensions are responsible for these losses in the Latin American country.
With lockdowns easing, it was also noted that the second-most populous country in the world has picked up demand in fuel. India’s fuel demand has begun to pick up the pace. Coronavirus continues to spread in India; however, gasoline demand rises as people begin economic activities.
A couple of weeks ago, I wrote on renewable energy replacing oil. According to Moody, the pandemic might have hastened the power transition. “COVID-19 lockdown experience of reduced commuting and business travel, alongside better air quality and family time, may deliver lasting changes in energy consumption”, as written in a report by Moody.
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Considering the long-term economic harm, those adjustments may want to accelerate the shift far from fossil fuels. The EIA corroborates this shift by stating to achieve the goal of net-zero emissions by 2050, the world will require a substantial acceleration in clean energy innovation. In the short term, The Energy Information Administration also increased its price outlook for Brent crude to $41 per barrel for H2 of 2020—this is four dollars higher than their forecast last month.
The rationale behind this upward trajectory is the “EIA expects high inventory levels and surplus crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase,” as summarized in the EIA’s monthly report.
