Image credits: Pixabay, Leo2014
News Article

Will Easing Lockdown Measures Drive Oil Demand Up?

By Peter Appleby | Tue, 04/28/2020 - 13:09

On Monday, oil prices experienced an aftershock from negative pricing with benchmark crudes shedding their value. With territories beginning to relax their COVID-19 curbing measures demand may soon rise. But how long will the process take?

The Mexican crude basket fell just shy of the 25 percent drop experienced by WTI on Monday, ending the day at a price of US$6.55 per barrel having started at US$8.53. WTI and Brent yielded 24.6 percent and 6.8 percent of their starting prices, closing at US$10.78 and US$19.6 per barrel respectively.

The recent period of price pressure, which saw the Mexican crude basket and WTI mixes enter negative pricing for the first time in their histories, has been driven by the fall in global demand, which El Economista reports has nosedived 30 percent.

However, some parts of the world have now began to relax COVID-19 reduction measures. Authorities in Wuhan, the Chinese city in which the pandemic began, relaxed travel restrictions earlier this month. Last weekend, Spanish Prime Minister Pedro Sánchez announced that the country’s citizens would be able to leave their homes for an hour to exercise. Yesterday, New Zealand Prime Minister Jacinda Ardern said that New Zealand has won its battle against the virus, but that the country would continue to remain vigilant.

WHO Director General Tedros Adhanom yesterday reminded the world that the relaxation of restrictions in individual countries did not mean that the virus has disappeared. “We want to re-emphasize that easing restrictions is not the end of the epidemic in any country,” Adhanom said during a WHO press conference.

Lifting restrictions will see a gradual reigniting of national economies and a subsequent uptake in travel, including both international travel and local commutes. This need for fuel should help reduce the global oil glut and assuage the grave concerns of worldwide oil storage space being maxed out. In turn, movement toward demand outstripping production once will begin. This will not be a short process.

Energy Aspect Oil Chief Oil Analyst Amrita Sen told Bloomberg that global storage will run out of space soon, but that the impact of this milestone is no longer the same grave worry that had taken prices negative. “We are going to be hitting tank tops in the coming weeks but now that is very well known. And also, we are trading June contracts so the supply response to that, which is kickstarting right now, will overtake the demand decline and we will start the rebalancing process. It is going to be a very long process, do not get me wrong, but at least the process is starting,” she explained.

Meanwhile, Jeff Currie, the global head of commodities research at Goldman Sachs told Bloomberg to expect continued price volatility until production drops below demand. Currie predicted this would happen once maximum storage is hit and operators make the largest production stops and shut-ins. According to Currie, the “inflection phase” that prices are witnessing will last around a month.

The data used in this article was sourced from:  
Mexico Business Publishing, Bloomberg, El Economista
Photo by:   Pixabay, Leo2014
Peter Appleby Peter Appleby Journalist and Industry Analyst