Oil prices are trading near their two-year high, but ‘jury is still out’ on recovery in demand


Oil prices hit their highest levels in more than two years, and are expected to end the week with a gain of more than 4%, with traders betting that the recovery in demand this summer will cause crude supplies to tighten. The recovery in demand, however, is not a sure thing.

“There are a lot of moving parts in the oil markets right now, but… the main upside support right now is the growing awareness that demand is picking up” from the pandemic, said Matthew Parry, head of the pandemic. long-term analysis at Energy Aspects.

In his Short-term energy outlook report released in MayThe Energy Information Administration said it expects global oil consumption to average nearly 97 million barrels per day in the second quarter of this year, up 2.2 million barrels per day compared to the first quarter, and climbs further – to 98.9 million barrels per day in the third quarter and to 100 million barrels per day in the fourth quarter. The next EIA monthly report will be released on Tuesday.

“Market expectations for the recovery in demand this summer are high, although the jury is still out on whether they will be fully realized,” Parry told MarketWatch.

Bets on this recovery drove benchmark U.S. crude prices to their highest since October 2018 and global benchmark prices to their highest since May 2019.

On Friday July, the West Texas Intermediate CLN21 crude futures contract,
+ 1.18%

+ 1.18%
rose 45 cents, or nearly 0.7%, to $ 69.26 a barrel on the New York Mercantile Exchange, with the first month expecting a weekly rise of about 4.4%. World benchmark gross August Brent BRNQ21,
+ 0.84%

+ 0.84%
traded 26 cents, or 0.4%, to $ 71.57 on ICE Futures Europe, trading about 4.2% higher for the week.

Also see: Why summer cooling demand and Atlantic hurricanes do not guarantee further gains for natural gas prices

“Optimism for a normalization of summer demand amid a reopened European and US economy has helped push crude prices up in recent weeks,” said Troy Vincent, market analyst at the analytics provider of DTN commodity market. Restricted production and drilling by U.S. crude producers and the weaker U.S. dollar also contributed to the rise in oil, he said.

Efforts to get supply chains “to function smoothly again and to replenish stocks of goods” nationally and globally have resulted in much higher demand for diesel “and are a major supporting factor for the demand for diesel. refined fuel that is often overlooked, ”said Vincent. He stressed that the demand for diesel is 2% higher than the level observed in 2019, before the COVID-19 pandemic.

Based on DTN data, however, gasoline demand is 2% lower than 2019 levels, Vincent said.

“… a combination of the persistently high unemployment rate, already high gasoline prices and the ability of large numbers of employed people to continue working from home is preventing the pent-up demand from being realized. essence that many had hoped for.

– Troy Vincent, DTN

While “it is clear that individuals are excited to socialize and travel after a year of quarantine and COVID-19 restrictions, a combination of persistently high unemployment, already high gas prices and capacity. of many who are employed to continue working from home prevents the realization of the pent-up demand for gasoline that many hoped for, ”he said.

The strong trend of growth in demand that the market witnessed from January to April in almost all parts of the United States “came to a halt” within the next four to six weeks, Vincent said. “The growth in demand follows a much more normal strengthening seasonal pattern rather than an increase in pent-up demand.”

Nonetheless, he believes that the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC +, have made the right choice in continuing their plan to gradually increase oil production.

“Global refineries and US net crude imports are expected to increase over the summer,” Vincent said. “The hope of a European social and economic activity experiencing a recovery similar to what we have seen in the [January to April] in the United States is a reason to be optimistic for the demand for refined products.

Lily US gasoline demand could hit record high this summer: GasBuddy


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