Oil Rises Above $30 as Deep Production Cuts Rebalance Market

Daniel Fowler
May 20, 2020

The dramatic turnaround is a sign of the speed at which the market is starting to recover from an unprecedented collapse in demand that forced prices below zero last month. "It has been a best possible scenario race away from negative prices", said Bob Yawger, director of Energy Futures at Mizuho in NY.

But weak crude refining profits persist, which could delay a recovery in oil demand.

Oil prices have risen in the past three weeks as states have rolled back lockdown provisions and global output has decreased.

One of the oil market's most obvious signs of oversupply - millions of barrels being stored on tankers all over the world - is showing very tentative signs of shrinking.There's a risk OPEC+ compliance with production cuts could be tested as oil prices recover and economies start to open up in the second half of the year, said analysts at ANZ and Mizuho Research Institute.He survived a bombing that left him badly wounded, shrugged off accusations of arms smuggling, and defended Iran's oil interests through war and sanctions. That partly helped ease concerns about the WTI contract's delivery point in Cushing, Oklahoma running out of space. American shale drillers reduced drilling rigs to the least in more a decade and Russian Federation pledged strict compliance with the record OPEC+ cuts. There's also been a "stunning reversal" in OPEC+ shipments so far in May, data intelligence firm Kpler said, after the alliance's deal to curb production kicked in at the beginning of the month.

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The American cuts come on top of nearly 10 million barrels a day of curbs from OPEC+, which kicked off at the beginning of the month.

"Meanwhile, lockdown measures are removed globally and the economy needs fuel to restart".

As of 01:01 am Moscow time (10.01 pm GMT 17 May), the June futures for WTI crude oil increased in price by 1.80 percent to $30.05 per barrel. Brent for July settlement added 3.3% to $33.57 on the ICE Futures Europe exchange following a 4.9% advance last week. That said, oil traders are not too optimistic on the potential upside from current levels, as WTI December 2020 futures are trading below the $35.00 level, suggesting the upside from current levels may be limited. "The problem becomes what if reopening the economy leads to a second wave of cases and then you have a ratcheting back where everyone has to re-hunker down".

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