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Oil prices staged an impressive rebound, and we barely noticed. It wasn’t because people were all out for a drive, or jetting around the globe.

Since April 21, the day after U.S. crude took its historic plunge below zero, the price has nearly quadrupled, even as travel remains limited in many regions. This is prompting some forecasters to abandon their most apocalyptic outlooks for energy markets.

It doesn’t mean the past three months were a blip. Accounting for the economic damage wrought by COVID-19 will take years, especially in countries that have botched the public health response, such as the United States. There remains the risk of a second wave of infection as activity resumes, and the human toll is already horrific.

It’s important to remember what is still locked down: millions of barrels a day of oil production. Still, the price recovery is ahead of schedule. The rebound sets the stage for a shrunken industry to plan for a world that looks a lot different than it did at the start of 2020.

Since then, companies around the world have put tens of billions of dollars of major energy projects on ice, shut down output and slashed payouts to shareholders. Major producers, including BP PLC and Chevron Corp., have begun job cuts numbering in the thousands. Clearly, these drastic moves are aimed at a fundamental business change and not just a short-term crisis.

Here in the early stages of rebound, though, crude has gained strength as global inventories flowed into tanks at slower rates than previously expected, partly because of all the production cuts. Those include a 9.7-million-barrel reduction among members of the Organization of Petroleum Exporting Countries and their allies that has been extended through July.

Reduced production in Canada, the United States and Mexico helped the price West Texas Intermediate (WTI) crude run to near US$40 a barrel as demand remains a wild card, says Michael Tran, managing director, global energy strategy for RBC Capital Markets.

The volume of North American oil that was shut-in peaked in May and production is expected to average out at 2.4 million barrels a day less in the second quarter compared with the first, Mr. Tran wrote in a report. He pegs the market rebalance and price gain at four to six weeks ahead of his previous estimate.

As a result, Mr. Tran upped his 2020 WTI forecast by US$4.25 to US$39.50 a barrel for the remainder of the year and up by US$1.25 to US$45 next year. The U.S. benchmark crude climbed 75 US cents to US$38.94 on Tuesday.

In recent weeks, U.S. data have shown the country’s crude inventories being drawn upon rather than building, easing fears that had emerged in March and April that crude stocks could test their physical limit. To be sure, inventories are still near record highs, but the data suggest that the tanks at Cushing, Okla., the delivery point for New York Mercantile Exchange WTI futures, have a third of capacity available.

The recovery picture is clouded by the weak margins for refineries to churn out gasoline and diesel fuel with road and air travel still well under normal levels. Inventories of these products have remained stubbornly high.

Overhanging any bullish sentiment is the risk that the pandemic could worsen again as governments loosen restrictions and folks let their guard down on physical-distancing measures. Indeed, infections have hit new highs this week, according to World Health Organization stats.

“Make no mistake, this is chilling. Both for the world from a medical perspective but also for the energy markets," said Bjornar Tonhaugen, Rystad Energy’s head of oil markets. "A second wave of the pandemic isn’t such a distant possibility any more and if it is realized, oil demand, which has slowly been recovering, might plunge back to lockdown levels.”

In addition, numerous U.S. shale producers have talked about bringing back shut-down production as early as this month, which also has the potential to weaken prices as supply ticks up.

All of it shows that recovery will remain fragile until demand returns in earnest, and chances of that happening steadily are slim until a COVID-19 vaccine is proven and infection is out of the equation.

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