Oil Prices Rally Towards $70 As Demand Outlook Improves
"Oil surpassed $65 a barrel, the highest since mid-March, as signs of strengthening demand from the U.S. to China stoked optimism that key markets ARE turning a corner in their recovery from the pandemic. West Texas Intermediate (WTI) rose $1.15 to settle at $65.01 a barrel. Brent for June settlement gained $1.29 to end the session at $68.56 a barrel. Both benchmarks posted the largest daily gain in over two weeks, settling at the highest level since March 15"- Bloomberg.
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This latest rally of crude price should give Nigeria little respite. Our budget benchmark stands at $40/barrel. Fortunately, the rise in crude oil price means our Excess Crude Account will have some inflow from now.
Agreed, OPEC production cuts affected the country badly with our daily output pegged at around 1.4 Million Barrels per day. But if our leaders can adopt a belt tightening fiscal approach and ensure transparency in their processes and every form of opacity in the system blocked, there is a silver lining in the horizon.
It looks like eyes are on global crude oil demand presently. United States a major consumer is seeing many states ease restrictions and the opportunity for summer travel, and therefore petroleum demand will increase and have a significant rebound. If United States sets the pace and reopens, the hope is other countries will surely follow and the crude oil price will keep rising.
Hopefully, we will see the end of Covid-19 anytime soon when we are all vaccinated globally against the scourge.
#justscribblingmythoughts
Oil Prices Rally Towards $70 As Demand Outlook Improves
Brent jumped to over $68 per barrel, and West Texas Intermediate neared $65 per barrel by the middle of the week and could rise even further unless headwinds appear.
Earlier in the week, OPEC+ forecast that oil demand this year would increase by 5.95 million bpd. This was an upward revision of 70,000 bpd from an earlier projection, and this fact injected optimism in traders, as did OPEC+'s decision to forego a meeting this week and keep producing at previously agreed rates.
Meanwhile, the U.S. Energy Information Administration reported on Wednesday that crude oil inventories are within the five-year average for the season—for the first time in months—and that middle distillate inventories were down by a sizeable 3.3 million barrels last week.
Middle distillates, mainly diesel, have been a headache for refiners during the pandemic as inventories reached excessive levels due to the slowdown in various activities involving freight transport. Now, businesses are returning to normal operation, according to the data, and demand for diesel is picking up.
"Between planting season and online truck deliveries, you have a nice number in the diesel," Bob Yawger, energy futures director at Mizuho, said as quoted by Reuters. "Planting season is doing wonders for the distillate market."
It seems the latest fuel demand developments in the United States were enough to eclipse earlier worry about Indian fuel demand amid a resurgence of infections there.
"There's a lot of green shoots in demand," according to Matt Sallee, portfolio manager at asset manager TortoiseEcofin, as quoted by Bloomberg. According to him, the situation in India is "clearly a headwind, but looking at what's going on in the U.S., it's a completely different story."
"The market expects a major revitalization for global oil demand from this summer onwards," Rystad Energy's head of oil markets Bjornar Tonhaugen told Bloomberg. "As vaccination campaigns progress and as lockdowns are set to soon be lifted in Europe and other recovering economies, the need for road and jet fuels will increase and the result will be felt."
Indeed, optimism appears to be on the rise. Goldman Sachs, which has been particularly bullish on oil, has stuck to its forecast that Brent could hit $80 a barrel in the second half of this year. The investment bank also said in a new note that it expected global oil demand to book its strongest rebound ever over the next six months.
At 5.2 million bpd, according to Goldman, the demand jump will be the result of accelerating vaccinations in Europe, which would, in turn, lead to greater demand for travel. This will also lead to an uptick in jet fuel demand—the worst hit segment of the fuel industry—to the tune of 1.5 million bpd, according to the investment bank.
If the rally continues as forecast, it will provide a much-needed breathing space for the Persian Gulf's oil-dependent economies, most of which need Brent to trade much higher than current prices to avoid another budget deficit. A price of $70 per barrel of the most traded benchmark may be high enough for some, such as Saudi Arabia. Still, others, notably Bahrain, need oil at $100 per barrel to make their budget ends meet.
At the same time, however, it would undermine calls for a green recovery from the pandemic. The IEA has already warned that emissions are once again on the rise after last year's lull because of lockdowns. The rebound in oil demand that banks and analysts expect appears to be proof that the transition to all-electric transport might be more challenging than some hope.
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