WTI Surpasses $30 per Barrel... Growing Expectations for 'Rebalancing'

Production Cut Agreement + Resumption of Economic Activities Worldwide
Increase in Private Car Use Due to Infection Concerns
Concerns Over Crude Oil Inventory Also Decrease

[Asia Economy Reporter Naju-seok] As countries around the world lifted the 'lockdowns' implemented to prevent the spread of the novel coronavirus infection (COVID-19), crude oil demand has gradually started to increase. Because of this, there is growing expectation that the crude oil oversupply situation following the COVID-19 pandemic will find a new equilibrium point.

Fatih Birol, Executive Director of the International Energy Agency (IEA), stated, "We can see early signs of a gradual rebalancing in the global oil market," while noting, "The recovery remains weak." The IEA forecasted in its report that global crude oil consumption this month will decrease by an average of 21.5 million barrels per day compared to a year ago.

[Image source=Yonhap News]

International oil prices remain lower than at the beginning of this year but have risen significantly compared to when they first dropped to negative prices. On the 15th (local time), June delivery West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) closed at $27.56 per barrel, up 9.0% ($2.27). WTI has risen 46% over the course of this month.

The oil price recovery is the result of a surge in demand following the lifting of lockdown policies combined with large-scale production cuts by oil-producing countries. OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) decided to reduce daily crude oil production by 9.7 million barrels starting from the 1st of this month. This is the largest scale cut in history. Furthermore, Saudi Arabia announced it would independently cut an additional 1 million barrels of oil production apart from the agreed cuts.

In this regard, Saudi Energy Minister Abdulaziz bin Salman and Russian Energy Minister Alexander Novak shared the view during a phone call on the 13th that crude oil demand is showing signs of recovery. They also anticipated that the storage issues, which had cast a shadow over the oil market, would ease thanks to the recovering demand.

Energy consulting firm Kaypler stated, "The OPEC+ production cut agreement is far from a full rebalancing, but the recent three-week export decline by oil-producing countries is playing a significant role."

Decreases in U.S. crude oil inventories are also positively impacting international oil prices. Last week, U.S. crude oil inventories fell by approximately 745,000 barrels. The market had initially expected an increase of 4.1 million barrels. This is the first time in three months that U.S. crude oil inventories have decreased.

Kathleen Kelly, CEO of Queen Anne's Gate Capital, which advises hedge funds, analyzed, "As economic activities resume, it seems people are choosing cars over public transportation as a safer means of travel." This preference for vehicles over public transit is due to concerns about COVID-19 infection risks.

Crude oil demand in China is also showing an upward trend. Last week, China refined 13.3 million barrels of crude oil per day, an increase of 3 million barrels since February this year. In China as well, the phenomenon of using vehicles instead of public transportation has been confirmed. The proportion of traffic congestion in major regions is steadily increasing.

This content was produced with the assistance of AI translation services.