Oil & Energy Markets

Oil Prices Hit 1-Month High on Supply Cuts, Improving Demand

By Deepak Sharma
May 19, 2020
2 minutes read
Generic Stock Or Commodity Price Chart

Crude oil prices have extended their gains from last week to touch their highest levels in more than a month. The strong uptick in prices is being attributed to the combined impact of the previously announced output cuts by key exporting countries as well as signs of a gradual recovery in demand amidst the easing of Covid-19 induced lockdowns around the world.

The near-month contract for Brent crude delivery was at around US$35 per barrel in early trade on Tuesday, having touched US$35.5 on Monday, its highest level since mid-April. The U.S. benchmark West Texas Intermediate (WTI) contract for June was at around US$31.70 per barrel, a level not witnessed since mid-March this year.

According to analysts, demand-side support is coming from an increase in transportation fuel consumption in the U.S. and Europe, and a rise is refinery demand in China as the country’s economy reopens. On the supply-side, cuts by the OPEC+ group of producers have now started to take effect. In addition, a record decline in the number of operating oil & gas rigs in the U.S. over the past month has helped ease the supply glut and allay previous concerns about a lack of storage capacity. Nevertheless, traders and investors continue to keep a close eye on June WTI contract, which will expire on Tuesday. As yet, there are no indications of last month’s negative price rout repeating itself.

Despite crude prices still trading at nearly half of what their levels were at the beginning of 2020, industry experts continue to repeat warnings about another steep fall in the coming months. According to reports, over 30 ships carrying more than 50 million barrels (MMbbls) of Saudi crude are set to arrive on the U.S. Gulf Coast and West Coast later in May and June. Experts also warn that oil prices may drop sharply again if there is another surge in Covid-19 infections, as governments around the world begin to allow businesses to re-open and people to move more freely.

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