Oil Prices Rise Steadily as 2020 Demand Outlook Improves
Global oil consumption is likely to see a gradual and steady rise through till the end of 2020, as lockdown restrictions imposed to curb the spread of Covid-19 continue to be rolled back across many countries and the impact of supply reductions takes effect.
However, industry analyst’s warn that any renewed surge in reported cases of Covid-19 infections and a potential second round of lockdowns imposed in major economies could lead to another sharp drop in demand and prices.
Total global oil demand fell by a record 35 million barrels per day (MMbbls/d) in April, as government imposed lockdowns and travel restrictions cut the demand for fuel. Demand had averaged around 100 MMbbls/d during 2019.
The latest data from the U.S. Energy Information Administration (EIA) and OPEC now suggests oil demand could recover to average around 90 MMbbls/d in 2020. The improving demand outlook, along with reductions in supply due to lower prices is likely to continue to drive prices higher through to the end of this year.
Benchmark crude prices are currently trading at over the US$35 per barrel average consensus estimate projected by industry analyst’s for 2020. The near-month contract for Brent crude delivery is was trading at around US$38.70 per barrel in early trade on Tuesday, whilst the U.S. benchmark West Texas Intermediate (WTI) contract for June was at around US$35.70 per barrel.
The recent rise in WTI prices has been driven both by a steady recovery in U.S. fuel demand as stay-at-home orders are lifted across the country, as well as by the steep drop in active rigs deployed across the U.S., which suggests that as much as 12% of total U.S. oil production has been shut-in over the past 2 months.