Fresh optimism as oil rebounds to pre-pandemic levels

Fresh optimism as oil rebounds to pre-pandemic levels

/ Oil & Gas / Wednesday, 20 May 2020 06:23

Oil prices surged as crude markets took heart from signals of pandemic lockdowns easing and an upturn in economic activity. The international oil price benchmark, Brent crude, rose to $35.38, its highest level since March.  Saudi Aramco also became the first major oil producer to see its share price rebound to trade at levels last seen before the price war. 

A big factor in the revival came from China, the world’s biggest manufacturer, where oil experts said demand for crude was nearly back at pre-pandemic levels. The country is consuming about 13 million barrels a day, just short of levels when it locked down in January.

The oil revival dated from the historic deal led by Saudi Arabia and Russia last month to cut an unprecedented 9.7 million barrels of oil a day from global supply, followed by further unilateral cuts from the Kingdom and other Gulf producers.

OPEC recently agreed to a deal to cut about 1.97 million barrels per day (bpd) in a strategy to shore up oil prices following a gradual easing of lockdown across several countries.

Ahead of the deal, world’s top exporter Saudi Arabia has announced it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group is next due to meet again.

Similarly Kuwait and Saudi Arabia had agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1.

Financial equities rejoiced, with the Dow Jones up roughly 3.5 percent during midday trading. WTI also surged past $30 per barrel, up by more than 10 percent.

Massive supply cuts went further in explaining the recent jump in prices. Oil traders view the implementation of the OPEC+ cuts favorably, with the 9.7 million bpd cuts phasing in swiftly.

Part of the reason is that some oil producers began having difficulty finding a home for its oil, as a portion of the cuts arguably became involuntary.

Meanwhile, PetroChina’s biggest refinery, a 410,000-bpd facility in Dalian, will resume operations in late June after a two-month overhaul, a statement by the oil company has said.

This could mean an increase in Chinese oil imports from Russia because the Dalian facility is connected to the East Siberia-Pacific Ocean pipeline, and is the biggest processor of the ESPO blend.

The restart of the Dalian refinery will add to rising run rates in the world’s top oil importer, which would likely be taken as good news for demand.

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