[Asia Economy Reporter Naju-seok] After the outbreak of the novel coronavirus infection (COVID-19), crude oil demand in China has recovered to 90% of the same period last year. This is the result of increased petroleum demand as economic activities resumed. As crude oil demand showed signs of recovery, international oil prices continued to rise. With oil-producing countries extending production cuts and various countries gradually lifting economic lockdown measures, there are also expectations that the pace of oil price increases could accelerate.
On the 3rd (local time), Jim Burkhard, head of the oil market at market research firm IHS Markit, stated, "China's crude oil demand has shown a rapid recovery, reaching 90% of pre-outbreak levels by the end of April," adding, "This is a positive signal from the perspective of the global economy."
As China’s economy, which had implemented lockdown measures due to the COVID-19 pandemic, shows a rapid recovery, other countries that had also entered lockdowns can now expect an increase in demand.
In particular, China, which has succeeded in curbing the spread of COVID-19, is expected to see crude oil consumption exceed last year’s levels in the second half of this year. Energy research firm Wood Mackenzie has also analyzed that China’s crude oil consumption in the second half of this year will increase by 2.3% compared to last year, reaching an average of 13.6 million barrels per day.
Despite the recovery in crude oil demand, oil-producing countries plan to extend the largest-ever production cut period. Originally, OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) had planned to cut production by 9.7 million barrels per day in May and June, then reduce the cut to 7.7 million barrels per day starting in July. However, they now intend to maintain the 9.7 million barrels per day cut level. According to foreign media, Saudi Arabia has persuaded Russia that the maximum scale of production cuts needs to continue for oil price stability, reaching a provisional agreement.
With the news of demand recovery and continued production cuts by oil-producing countries, oil prices rose again. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for July delivery closed at $37.29 per barrel, up 1.3% ($0.48). Brent crude, which surpassed $40 per barrel for the first time in three months, closed at $39.79 per barrel on the same day.
However, concerns about oil prices remain. The issue of non-compliance with production cuts is complicating market forecasts. According to Bloomberg, Saudi Arabia and Russia are pressuring Iraq, Nigeria, Kazakhstan, and Angola, which have not fulfilled their commitments despite the OPEC+ production cut agreement. Saudi Arabia and Russia are urging these four countries to implement additional cuts from next month to cover both the agreed cuts and the shortfalls. However, given their financial crises due to falling oil prices, it is uncertain whether these countries will comply with additional cuts. While there are expectations that the OPEC+ virtual meeting will be held on the 4th, there are also forecasts that it may be postponed until around the 10th due to issues with compliance by non-fulfilling countries.
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