Energy Market: Oil Demand Recovers, Prices Trapped In Narrow Band

Published June 28th, 2020 - 06:00 GMT
Energy Market: Oil Demand Recovers, Prices Trapped In Narrow Band
Jet fuel consumption is still down by almost half compared with the pre-pandemic era. (Shutterstock)
Highlights
Oil demand is improving, but the uneven pace of the rebound has created challenges

Brent crude declined to $41.02 per barrel last week as WTI also retreated to $38.49 per barrel. Both grades were down by about a dollar.

On a monthly basis, Brent has been moving in a narrow range between $38 and $42 per barrel since the end of May.

This is a healthy sign both for the oil market and the wider global economy, especially given the upheaval caused by the pandemic and the recent pickup in cases across some major economies.

The slight drop in oil prices might be explained by the record spike in COVID-19 cases and the increase in global oil inventories.

The huge glut remained in oil and refined petroleum product inventories onshore and offshore in idled tankers, despite some news about such floating storage volumes starting to shrink.

It is worth remembering that the record output cuts undertaken by OPEC+ were not intended to provide a short-term boost for prices but rather a medium-term improvement for market balance.

Although oil demand is improving in most countries, this recovery is getting more selective in terms of demand for refined petroleum products. Gasoline consumption is rising as economies emerge from lockdown, but the uneven pace of the rebound has created challenges for refineries seeking to anticipate demand.

There has, for example, been a shift from diesel to gasoline as people are slow to return to public transport. This change in refining behavior will affect the refining margins for other products such as jet kerosene fuel.

Jet fuel consumption is still down by almost half compared with the pre-pandemic era. Now refiners need to cope with a much stronger rebound in gasoline demand compared with diesel and jet fuel. This requires a reconfiguration of refining programs to be able to shift the yield toward more light distillates and less middle distillates.

• Faisal Faeq

The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.


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