Oil rally stalls
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ANS prices retreat from 3-month high on COVID-19 fears; US gasoline use up
Alaska North Slope crude prices dropped $2.13 to $41.94 per barrel June 24, according to the daily estimate from the Alaska Department of Revenue. Brent crude closed at $40.31, for a loss of $2.32.
Analysts said oil markets were spooked by spikes in COVID-19 cases, striking fears of a new round of coronavirus closures, while futures trading signaled concerns about storage capacity.
Futures in New York fell 5.9% to the lowest in a week June 24, Bloomberg reported.
U.S. crude inventories rose by 1.4 million barrels for the week ending June 19, to 540.7 million barrels, the U.S. Energy Information Administration said. Analysts in a Reuters poll had expected a 299,000 barrel rise.
The abruptly lower prices June 24 put a lid on a narrative of rising optimism for higher oil prices as economies around the world opened up and spurred demand increases from COVID-19 induced lows experienced earlier in the spring.
ANS prices hit $44.48 - a three month high - June 22 before beginning a slide on June 23 which broke a steady march upward from $41.91 on June 18.
On June 22 Bloomberg said physical crude oil prices were on the rise across Europe because Russia was ratcheting its exports to multi-year lows, increasing demand for other European grades.
Combined shipments of Urals crude from Russia’s Baltic and Black Sea ports ran about 880,000 barrels per day in early June, according to Bloomberg calculations from loading programs, on pace for the lowest since at least 2008.
Russia agreed June 6 with the Organization of the Petroleum Exporting Countries and other producers to continue cutting 9.7 million barrels a day through July, removing 10% of normal global production.
Bloomberg said June 22 that traders in London were bidding up prices for North Sea oil during the recurring 4 p.m. half hour trading window which sets the price of Brent crude.
“Two months ago, every trader wanted to sell cargoes and none were keen to buy,” it said. “Now the window has transformed into a bull market, where bids outnumber offers 10 to one and prices are surging.”
Oil prices have generally been in recovery mode since the week of May 18, when oil futures prices plunged into the negative for the first time in history.
US gasoline consumption acceleratingGasoline consumption in the United States hit a major milestone in June, more than halfway back to pre-COVID-19 levels, Oil Price Information Service, OPIS, by IHS Markit said June 24.
A recent OPIS survey showed that in the second week of June demand was off 22%, compared to the same week in 2019.
Consumption tanked in the second week of April, down 49% from 2019 volumes, as the shutdown of the economy and stay-at-home orders demobilized the nation.
“Although people talk about ‘demand destruction’, it’s actually been ‘demand contraction’ in response to the economic shutdown,” said Daniel Yergin, vice chairman, IHS Markit. “And now we’re seeing demand ‘uncontracting’ as people get back into their cars.”
“Gasoline sales have been rising at an average of 6.4% per week since the low point in April when demand was sliced in half,” OPIS President Fred Rozell said.
Some analysts are confident in gasoline’s comeback.
“We see a V-shape recovery for gasoline,” said Chris Midgley, head of analytics at S&P Global Platts.
But OPIS cautioned that the journey back to 2019 consumption levels may hit some bumps in the road.
“We can see a new preference for driving your car instead of public transportation or a short-range flight, and people do want to get out,” said Tom Kloza, OPIS global head of energy analysis. “But that will be offset by less commuting and more working from home, the cancellation of sporting events, still-high unemployment levels and possibly a second wave of the virus in the autumn.”
COVID-19 may expedite peak demand, slash world’s recoverable oilRystad Energy’s 2020 annual global energy outlook said the COVID-19 downturn will expedite peak oil demand, retard exploration in remote offshore areas, and as a result reduce the world’s recoverable oil by 282 billion barrels.
Global total expected remaining recoverable oil resources will decrease to 1,903 billion barrels, 42% of which are in OPEC territory, with the remaining 58% located outside the alliance, Rystad said.
“Non-OPEC countries account for the lion’s share of lost recoverable resources with more than 260 billion barrels of undiscovered oil now more likely to be left untouched, especially in remote exploratory areas,” said Per Magnus Nysveen, Rystad head of analysis.
OPEC countries are much more resilient to the current crisis and will only lose a fraction compared to their non-OPEC counterparts such as the U.S. (down 49 billion barrels) and Russia (down 31 billion barrels), the report said.
“OPEC countries are expected to lose 21 billion barrels of reserves potential as the negative developments in Venezuela and Iran outweigh the increased strength and reserves potential of core OPEC countries in the Arab Gulf region,” Nysveen said.
In the United States, Rystad expects lower upstream activity in shale acreage, less exploration in the Gulf of Mexico and a reduced number of licensing rounds on the Atlantic Coast.
Russia will see more of estimated Arctic offshore oil reserves left in the ground due to peak oil demand coming sooner, Rystad said.