[Ensure you have all the info you need in these unprecedented times. Subscribe now.]
Oil’s recovery from its historic crash last month is barreling ahead, with some OPEC producers displaying signs of confidence that the market is stabilizing.
Nigeria and Algeria — both members of the Organization of Petroleum Exporting Countries — have lifted the official selling prices for their supply, a sign that they believe customers are willing to pay more for their barrels. That would offer some respite after demand was crushed by the fallout from the coronavirus outbreak.
“The global market is starting to tighten a bit,” said John Kilduff, partner at Again Capital. “You’ve got constrained supplies in the face of a bit of a rebound at least in demand that is a recipe for these higher prices.”
Output cuts have started to chip away at a massive oversupply, and demand is showing tentative signs of picking up as some economies ease lockdowns that were aimed at containing the virus. That’s helped oil surge about 80% this month, after prices tumbled below zero in April for the first time ever. The so-called futures curve is flattening — a signal supplies are growing tighter. Russia, a key member of the OPEC+ alliance that has pledged record production cuts, expects the market to balance in June or July.
Still, the fragile nature of the recovery was on display over the Memorial Day weekend in the U.S., when gasoline demand dropped an estimated 25-35% from a year earlier. Consumption slid 0.5% from the Monday prior, according to Patrick DeHaan, an analyst at GasBuddy.
On May 26, futures in New York rose as much as 4.7%. Nigeria lifted the selling price for its supplies in June from record lows. Algeria also hiked its official prices by almost $3 a barrel. Meanwhile, Merck & Co. released development plans for a treatment and vaccine for COVID-19.
“Global supply is still heading lower while demand is rising,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “This all lays the ground for higher prices down the road.”
Around the world, producers have slashed global production by 14 million to 15 million barrels a day so far, Russian Energy Minister Alexander Novak said on May 25. The nation sees the current global surplus at 7 million to 12 million barrels a day, RIA Novosti reported May 25.
Though output has been cut and demand is recovering, there are ongoing signs of the damage the virus has wrought on the industry. Both refineries in the Philippines have now been shut as a result of weak fuel demand, according to their operators.
Want more news? Listen to today's daily briefing: