As the expiry date for June WTI futures approaches, oil has had a solid performance in recent days, with the commodity closing out Friday on a two-month high, and with oil prices climbing by more than $1 a barrel today – the highest price in more than a month.
As COVID-19 has spread, lockdown measures have significantly reduced the demand for oil, with people staying indoors and travelling less frequently. However, lockdown measures around the world are beginning to ease, and with it, output cuts and hope for a recovery in fuel demand is supporting prices.
As of 0912 GMT, Brent crude LCOc1 reached its highest level since mid-April, increasing by $1.21, or 3.7 per cent, coming in at $33.71 a barrel. The US WTI crude CLc1, on the other hand, was higher by $1.59 or 5.4 per cent on Monday at $31.02 per barrel. This is the strongest price recorded since mid-March.
Although originally, many market analysts believed that prices could go negative again surrounding the June WTI futures expiry, however, now it appears, that prices are likely to go up tomorrow.
Speaking on oil prices, Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA said: “Most of the market’s attention will be on the June WTI futures expiry tomorrow. Perversely, compared to last month, the pressure is to the upside, with the intra-month rolls skewed in favour of the bulls.
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“Although open interest in the June contract has plummeted, CME data still shows an open interest of 55,605 contracts in the June futures. That is a fall of nearly 20,000 contracts from Thursday, but still leaves some 56 million barrels of oil open for the expiry tomorrow.”
Peak oil demand is behind us
Nonetheless, as highlighted by ING analyst Warren Patterson, demand is not expected to recover to levels before COVID-19 soon: “Clearly the fundamentals in the market are improving, but we continue to believe that the market is rallying too much too soon, with the risk that further strength will only prolong the supply and demand imbalance.”
As Finance Magnates reported, demand for oil is not likely to return to pre-COVID-19 levels in the near future. In an earlier interview, Charalambos Pissouros, the Senior Market Analyst at JFD Group, said that he believes we are unlikely to see a V-shaped recovery in oil demand, despite governments around the world easing their restrictive measures.
“Even Fed Chair Powell warned yesterday over an “extended period” of weak growth and stagnant income which means that the recovery in energy demand may be a slow one,” he explained.
“What adds more credence to my view is that, in its monthly report yesterday, OPEC cut further its forecasts for global oil demand during 2020. Specifically, the cartel expects the total world demand for the year to be 90.59 bpd, down 9.10% from 2019.”