Oil prices has been gradually recovering after hitting the historic low prices seen in April. The gains in prices has been slow, however oil is set to close in green for the third consecutive week as producers tighten supply and demands creeping up slowly.
It has not seen consistent daily gains for the past three weeks though, there has been days of losses as well as days of gains, but all in all, it is poised to maintain its weekly gain for the third time.
On Friday as at 7:24GMT, oil futures benchmark Brent crude price has appreciated by 3.41% and is trading at $32.19 which is a $1.06 increase in price.
US oil futures, Western Texas Intermediate (WTI) is trading at $28.44 per barrel, this represents a 3.19% increase in price by $0.88. Western Canadian Select (WCS) is trading at $24.13, an increase of $0.88 representing 3.78% appreciation.
Nigeria banner oil Bonny light however closed at $26.96 on Thursday, an increase of 3.18% compared to Wednesday closing price. On Wednesday, Nigeria revised its 2020 budget oil benchmark downward to $25 per barrel. This is the second time the 2020 budget oil benchmark is being revised due to the slump in oil prices.
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These oil price recoveries is attributed to supply cuts and improving demands. The historic OPEC+ deal on oil production, in which OPEC and its allies agreed to cut production by 9.7 million barrels per day, came into effect on 1 May 2020. On 11 May, Saudi Arabia announced a voluntary cut of additional 1 million barrel of oil per day. The country also called on other oil producers to do the same.
Several countries including China, US, some European countries and some African countries are beginning to reopen after lockdown, thus returning economic activities gradually, which in turn will increase the demand for oil.
Year to date oil is still down more than 50% after a rout that pushed prices to negative, to as much as minus $40 for WTI in April and the road back to pre-virus levels of demand looks long and uncertain. OPEC this week presented a bleak assessment of crude markets for the second quarter and the U.S. Federal Reserve warned of a lasting downturn, but efforts to rebalance the market via supply cuts seem to be working.
According to a monthly report from the IEA on Thursday, global oil production is set for historic decline this month, making it the lowest in nine years. The agency boosted its 2020 demand estimate by 700,000 barrels a day, but there is still 8.6 million decrease in demand per day.
On Friday Barclays raised its Brent crude and WTI futures forecast by $5-6 & $16 per barrel for 2020 and 2021 respectively. It said that “market forces have aligned producers around the world to support fundamentals, and is increasingly showing signs of having troughed”.
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The bank says that it sees the prices of Brent and WTI selling at average price of $37 and $33 per barrel in 2020 while 2021 prices will average at $53 and $50 per barrel respectively. The bank also said that it does not expect the WTI prices to go into negative territory again.
According to ship-tracking data compiled by Bloomberg, over 30 tankers with Saudi Arabian oil are set to reach the U.S. in May and June. This might add pressure on US storage just as the gluts in the states show signs of easing.
However, as the ease of lockdown continues across several countries around the globe, demand for fuel will continue to pick thus leading to increase in oil demand. With improved demand coupled with supply cuts from OPEC and its allies, the worst days for oil might have been over.