Oil prices hit 8-week high May 12; Q3, Q4 demand acceleration seen
Click here to go to the full PDF version of this issue, with any maps, photos or other artwork that appears in
some of the articles.
Alaska North Slope crude rose 37 cents to close at $67.85 per barrel May 12, while West Texas International rose 80 cents to close at $66.08 and Brent rose 77 cents to close at $69.32.
It was the highest close for WTI since March 5, and the highest close for Brent since March 11.
In early trading, Brent once again made a run at $70, rising to $69.79 before dropping later in the day as Colonial Pipeline restarted its 5,500-mile fuel line from Texas to the East Coast after a precautionary shutdown spurred by a cyberattack discovered May 7.
U.S. Energy Secretary Jennifer Granholm said in a May 11 briefing that it would “take days” after the restart for the line to be “up and running.”
“This pipeline has never been shut down before,” she said.
In preparation for the system restart, Colonial Pipeline has taken delivery of an additional 2 million barrels of fuel from refineries for deployment upon restart, the company said in a May 11 situation update.
ANS fell behind Brent May 10 in the race to $70, plunging $1.41 to $67 after closing 12 cents above Brent on May 7. Brent edged up May 10 by 4 cents to $68.32, while WTI rose 2 cents to $64.92.
All three of the indexes moved modestly higher on May 11.
U.S. crude exports fell for the week ending May 7 to 1.8 million barrels per day, the lowest level since October 2018, while crude inventories were 0.4 million barrels lower, according to the U.S. Energy Information Administration.
The combination of lower exports and a crude draw is considered by analysts to be bullish for prices.
Demand to outstrip supplyDemand levels that outstrip supply in the second half of 2021 may pull oil prices higher.
Under the current Organization of the Oil Exporting Countries production scenario, supplies won’t rise fast enough to keep pace with expected demand recovery, the International Energy Agency said in its May Oil Market Report.
As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in first quarter 2021 to 99.6 million bpd by year-end, the IEA said.
Weaker-than-expected first quarter oil use in the United States and Europe and a reduced outlook for India due to its COVID-19 surge led the agency cut its outlook for 2021 demand growth to 5.4 million bpd, 270,000 bpd lower than in its previous report.
The forecast for the second half is largely unchanged on the assumption that the situation in India and elsewhere improves, the IEA said.
World oil supply rose 330,000 bpd to 93.4 million bpd in April and will increase further in May as OPEC+ continues to ease output cuts, the agency said. Based on the current OPEC+ agreement, global oil production is set to grow by 3.8 million bpd from April to December.
For 2021, world oil production is set to rise by 1.4 million bpd year-on-year versus a collapse of 6.6 million bpd in 2020, the IEA said.
Canada leads non-OPEC+ producers with growth of 340,000 bpd while the US is set to contract by an additional 160,000 bpd, it said.
The IEA revised its estimates of 2021 global refinery throughput on demand downgrades, newly announced temporary and permanent shutdowns, and in anticipation of a strong hurricane season in the United States.
“As downward revisions mostly affected 2Q21, we maintain our forecast of a strong ramp-up in refining activity in the next four months, with refinery runs expected to peak in August,” the IEA said, adding that after a 7.4 million bpd decline in 2020, refinery intake is expected to increase by 4 million bpd in 2021.
OPEC cautiously optimistic for 2nd halfThe global economic recovery seems to be gaining momentum at a diverging pace OPEC said in its Monthly Oil Market Report for May.
“Those economies that are able to gradually contain the pandemic, thanks to vaccination campaigns and other successful containment strategies, and that also have the financial capabilities to provide economic stimulus measures are rebounding quickly,” the cartel said.
OPEC expects most of the global recovery to materialize later in the year, but it cautioned that there are still some significant uncertainties.
“The path of the COVID-19 pandemic will be the overarching factor impacting the near-term pace of the recovery, with the potential emergence of further harmful COVID-19 variants posing a particular risk,” OPEC said. “Moreover, sovereign debt in most economies has risen to levels at which a lift in interest rates could cause severe fiscal strain.”
A further rise in inflation, especially in the United States and the Euro-zone, may cause some tightening of monetary policies, which will need to be watched in the short term, OPEC said, adding that trade-related disputes, especially between the U.S. and China, may continue.
For 2021, OPEC expects world oil demand is to increase by 6.0 million bpd, unchanged from last month’s estimate, to average 96.5 million bpd.
- STEVE SUTHERLIN