Oil Market Recovers As Fear of Second Virus Wave Intensifies

Published June 21st, 2020 - 06:00 GMT
Oil Market Recovers As Fears of Second Virus Wave Intensifies
Brent crude managed to recover to above $42 with WTI following the same trajectory, finishing the week at $39.75 per barrel. (Shutterstock)
Highlights
The recovery came on the heels of the first weekly decline in six weeks amid a huge sell-off in the futures markets that coincided with a major equities retreat.

Oil rebounded this week with Brent crude recovering to above $42 and WTI following the same trajectory, finishing the week at $39.75 per barrel.

The recovery came on the heels of the first weekly decline in six weeks amid a huge sell-off in the futures markets that coincided with a major equities retreat.

The monthly reports of both the International Energy Agency (IEA) and OPEC, show OECD commercial oil stocks at historical highs above the five-year average. They also indicated a sharp downward movement in petroleum refined products prices. 

However, Brent crude managed to recover to above $42 with WTI following the same trajectory, finishing the week at $39.75 per barrel.

Both OPEC and IEA believe oil demand may take longer than expected to recover to pre-pandemic levels of roughly 100 million barrels per day (bpd) amid a sluggish expected recovery in the energy industry and wider economy.

As a commodity that often trades as much on sentiment as fundamentals, it is no surprise that money managers are factoring in fears of a second wave of the coronavirus on global demand.

The Brent crude price market structure has moved into “backwardation” sooner than expected, which describes a situation when the spot price of oil is higher than the forward price. Such a market encourages spot market trading activity, which will play a major role in depleting historically high levels of oil and petroleum refined products inventories globally.

The market for Brent crude flipped into backwardation despite the existence of some 100 million barrels of oil n floating storage. 

The oil market is unlikely to see large onshore storage declines before these floating supplies are consumed and the market slowly rebalances.


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