International Oil Prices Recorded Negative a Month Ago... "WTI Up 8.1% as Supply and Demand Concerns Ease"

[Asia Economy Reporter Naju-seok] International oil prices, which recorded negative (-) values a day before the futures expiration last month, showed an upward trend thanks to supply and demand improvements. West Texas Intermediate (WTI) crude oil surpassed $30 for the first time since mid-March.

On the 18th (local time) at the New York Mercantile Exchange (NYMEX), June delivery WTI closed at $31.82 per barrel, up 8.1% ($2.39). This day was one day before the June delivery WTI expiration. In contrast, the May WTI futures recorded -$37 a day before expiration on the 20th of last month due to crude oil storage facility shortages.

The outlook for international oil prices had been negative due to the ongoing oversupply of crude oil. Market participants struggled to find storage for the overproduced crude oil. However, recent supply and demand forecasts are improving. While crude oil production is decreasing, demand is increasing. The oil market appears to be gradually recovering from the global supply and demand shock caused by the COVID-19 pandemic.

Global crude oil production is showing a noticeable decline. On the 1st of this month, OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) reduced daily crude oil production by 9.7 million barrels. Additionally, Saudi Arabia and others announced voluntary production cuts exceeding 1 million barrels. The decline in the United States, the world's largest crude oil producer, is also evident. According to the U.S. Energy Information Administration (EIA), crude oil production has decreased by 1.5 million barrels over the past six weeks, falling to about 11.6 million barrels. Experts expect U.S. crude oil production to decrease further by 500,000 to 1 million barrels. Drilling equipment and other operations in the U.S. are being shut down one after another.

On the other hand, crude oil demand in the U.S. is also increasing. Experts see recent improvements in petroleum product demand within the U.S. Gasoline demand in the U.S. is estimated to be about 30% lower than usual, which is a significant improvement compared to the 50% drop seen in early last month.

[Image source=Yonhap News]

China's crude oil demand has shown a sharp increase. According to Bloomberg, oil traders estimate China's crude oil demand at about 13 million barrels per day. This is almost similar to the 13.4 million barrels demand in May last year. Considering the sharp decline in jet fuel demand due to reduced travel demand, crude oil demand has actually increased compared to a year ago.

The increase in China's crude oil demand is analyzed to be due to Chinese people preferring private cars over public transportation because of concerns about COVID-19 infection.

Concerns about storage shortages are also decreasing due to improved supply and demand conditions. This was confirmed by the reduction in crude oil inventories at the Cushing crude oil storage facility in Oklahoma, which clearly shows the storage situation in the U.S.

Although the upward trend in oil prices is expected to continue for the time being, the extent of the increase is expected to be limited. Francisco Blanch, Head of Commodity Derivatives Research at Bank of America (BofA), predicted, "If oil prices approach $40 per barrel, crude oil production will increase rapidly," adding, "The peak of this recovery will be lower."