Author: Daniel Lerch

It was a historic week for the oil industry, potentially marking a turning point, at least for the corporate strategies of the oil majors. More curbs on the supply side added some bullish sentiment to the market, although the impacts on the fundamentals are not necessarily going to unfold in the near term. But in the wake of the enormous legal and corporate governance blows to the oil majors, more than a few analysts spoke about growing odds of a supply crunch in the years ahead. Royal Dutch Shell lost a landmark legal case in a Dutch court, which, if it stands, will require 45% cuts in GHG emissions by 2030. The case is seen as a warning sign for the rest of the oil industry, signaling legal exposure to emissions.

Prices had their worst week in at least a month as the market contends with a potential deal that could lift US sanctions against Iranian crude. WTI futures in New York rose the most since mid-April on Friday, tracking a broader market rally that buoyed prices during most of the trading day. Nonetheless, crude benchmarks couldn’t shake off the specter of millions of barrels a day of Iranian crude returning to the market, with Brent futures in London posting the most significant weekly decline since March.

Prices have been stuck in a range lately, with optimism around global inventories rebalancing being offset by constant reminders that parts of the world remain far from a full recovery from the pandemic. The International Energy Agency said last week that the global glut that built up last year has cleared. However, the agency also lowered its demand estimates due to the virus’ resurgence in India.

The struggle between the spreading pandemic in the less developed world and the revival of economic activity in the US, Europe, and China continues to keep prices volatile as they move steadily higher. Last week, futures posted another gain as expectations for growing economic activity in the US and Europe fueled optimism around more robust summer demand, with New York prices advancing 2.1%. Fuel sales in the UK rose to the highest since the pandemic began, and in the US, refineries are running at their highest rate since the pandemic began as they gear up for the summer driving season. Declining crude inventories and progress in reopening the US economy are boosting oil prices.

Prices rose last month with much positive economic data and signs of a fuel consumption revival in key economies offsetting a worsening coronavirus crisis elsewhere. Futures in New York rose last week, extending their monthly gain to 7.5%. The near-certain likelihood of higher fuel consumption in the US, China, and the UK has brightened the overall demand outlook, even as a resurgent pandemic in India, Brazil, and Japan cloud those prospects. OPEC and its allies see world consumption rebounding by 6 million b/d this year, while Goldman Sachs says demand could post a record jump as vaccination rates increase.

Prices fell last week with spreading coronavirus cases in countries such as India tempering optimism around positive signs out of the US and Europe. Futures in New York rose the most in over a week on Friday but were unable to reverse a 1.6% weekly loss as the market weighed a global economic reopening that’s coming in fits and starts. The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers. Barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February, according to the IEA.

Last week, oil prices saw their biggest weekly gain since early March as signs emerged of a recovery from the pandemic gaining traction in the US and China. Futures in New York advanced 6.4% last week, despite eking out a slight loss on Friday. On the heels of robust economic figures out of the US, data from China showed its gross domestic product climbed 18.3% in the first quarter from a year prior as consumer spending beat forecasts. In March, China’s refiners processed about 20% more crude than a year earlier, pointing to the strength of the country’s rebound. JPMorgan analysts forecast that Brent would hit $70 again, with a boost in US demand likely bringing OECD inventories back to normal sooner than expected.

The markets posted their worst week since mid-March amid concerns that rising global coronavirus cases slowed economic recovery. West Texas Intermediate futures ended the week down 3.5% to close at $59.32. Brent closed at $62.95. With the OPEC+ countries planning to raise output by some 2 million b/d in May and June, markets now are focused on whether the demand recovery will be enough to absorb growing supplies. While consumption is climbing in India and the US, rising virus cases and stricter travel limits in Europe are muddying the forecast and putting pressure on crude prices.

West Texas Intermediate and Brent crude futures posted solid increases on Thursday after OPEC+ decided to increase production slowly. WTI for May delivery gained $2.29 to $61.45 per barrel. June Brent futures closed at $64.86/barrel, up $2.12. Oil futures received a boost from the OPEC+ group of significant producers’ decision to increase output from May to July.

Prices were volatile last week as the grounding of the “Ever Given” container ship in the Suez Canal set off a chain of events that wreaked havoc on global trade. On Tuesday last week, Brent crude’s price plunged to $60.86 per barrel from $69.63 per barrel on March 11th. The price had rebounded to nearly $64 per barrel by Wednesday. The dramatic price fluctuations are attributable to various events, including US oil inventory figures, another round of lockdowns in the EU, AstraZeneca vaccine safety and efficacy concerns, and the vessel stuck in the Suez Canal. On Friday, the markets closed essentially unchanged for the week at $60.97 in New York and $64.57 in London. Prices are up roughly 25% this year, and there’s confidence in the longer-term outlook as vaccination rates climb, and OPEC+ keeps supply in check.