US optimism lifts oil
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Air travel rises as crude inventories fall; 900,000 jobs added in March
Alaska North Slope crude rose 42 cents April 7, to close at $63.10 per barrel, while Brent crude rose 42 cents to close at $63.16 and West Texas Intermediate gained 44 cents to a close of $59.77.
It was the second day of gains for the crude indexes, spurred by optimism over the reopening of the U.S. economy as the pace of COVID-19 vaccine rollouts accelerated.
The United States added more than 900,000 jobs in March, the highest gain in seven months.
The Energy Information Administration reported that crude inventories had fallen for a second week, taking U.S. crude stockpiles down more than 3 million barrels to a five-week low.
U.S. domestic air travel continued its recovery, with Transportation Security Agency traveler throughput levels hitting a new post-pandemic high of 1,580,785 April 2, up from 129,763 on the day in 2020, but below the 2,476,884 travelers that passed TSA checkpoints on April 2, 2019.
On four of the first five days of April, TSA throughput numbers exceeded 1.5 million travelers, raising hopes that jet fuel demand is finally catching up with the bounce back in demand for other transportation fuels.
Demand optimism was further stoked April 2 by International Monetary Fund comments stating that unprecedented public spending to combat the effects of COVID-19 would push global growth to 6% in 2021, a rate not seen since the 1970s.
Optimism over the U.S. recovery offset pessimism surrounding new lockdowns and vaccine snafus in Europe. AstraZeneca Plc’s COVID-19 vaccine continues to fall under scrutiny, having been pulled from the market in some countries, while the U.K. is advising that people under the age of 30 should be offered an alternative shot if available.
Pessimism over Europe, new strains of the coronavirus and surging cases in India set the tone as trading opened for the week April 5. ANS plummeted $2.53 to close at $62.60, Brent slumped $2.71 to close at $62.15, and WTI dropped $2.80 to $58.65.
The U.K. said it was considering an extension of restrictions on global travel beyond May 17 if infections continue to surge around the world, and Italy extended travel restrictions for its citizens.
OPEC+ to increase productionThe Organization of the Petroleum Exporting Countries and its allied oil producing countries have decided to ease production levels higher in May and through the summer. The matter was decided at the 15th OPEC and non-OPEC Ministerial meeting April 1.
OPEC+ will raise daily oil production by 350,000 barrels in May, 350,000 barrels in June and by 441,000 barrels in July, Saudi Arabia Minister of Energy Prince Abdulaziz bin Salman said in a press conference.
OPEC Secretary General Mohammad Sanusi Barkindo said there are many positives to focus on in the oil market, such as the rollout of vaccines, further fiscal stimulus - particularly the huge $1.9 trillion package in the U.S. and the continued commitment of OPEC+ on sustained market stability and bringing down inventory levels.
“On the demand front, we continue to see a divergence between the first and second half of 2021; the first half has again been adjusted lower, primarily on the back of extended measures and new lockdowns in many key parts of Europe,” Barkindo said. “Oil demand growth in the second half, however, remains intact. This reflects prospects for a stronger economic recovery with the positive impact of further vaccination rollouts.”
Barkindo said there remains a need to stay watchful, and to tread a prudent path.
“There remains many impediments and potential obstacles to the recovery, including further lockdowns; the uneven rollout of vaccines across the world; the prevalence of COVID-19 variants; sovereign debt levels in many regions; and inflationary pressures and central bank responses,” he said.
From the supply perspective, non-OPEC liquids are forecast to grow by almost 1 million barrels per day in 2021, compared to 0.7 million bpd expected at the group’s previous meeting, Barkindo said, adding, “One important point of reference is that the U.S. liquids supply forecast remains unchanged, with growth of 0.16 million bpd in 2021.”
The EIA backed up OPEC’s expectations of modest gains in U.S. production, adjusting its U.S. output forecast for 2011 to 11.04 million bpd, down from the previous month estimate of 11.15 million bpd due to the cold snap February that hammered production in Texas. It also dropped its output forecast for 2020 by 100,000 bpd.
Vaccine hiccups slow demandRystad Energy said vaccination campaign hiccups put the recovery of up to 1 million bpd of oil demand at risk in 2021, depending on the duration of the setbacks.
The temporary ban of the AstraZeneca vaccine in several EU and Asian countries is the culprit, Rystad said.
Rystad forecasted that the AstraZeneca vaccine would make up 2.6 billion of the total global 11 billion global vaccine doses produced in 2021.
A ban or delay in vaccine distribution in Europe could likely be filled by other vaccine producers, but not without delays, Rystad said.
Rystad forecasts global oil demand in 2021 at 95.2 million bpd, but under a slow vaccination scenario, demand in 2021 could average at as low as 94.2 million bpd.