Tonhaugen argues that current p[rices are propped up by "artificial" supply cuts: File Image/PixaBay
Despite declining Covid infection rates globally and assurances from the scientific community that vaccine tweaking can deal with Covid variants - two ingredients that helped fuel a nine-day winning streak for crude - worries in some quarters over demand and the potential impact of variants was enough to derail trader enthusiasm on Thursday.
Shortly after the International Energy Agency noted that global oil supply was still outstripping demand and that demand in 2021 would rebound more slowly than previously thought, Brent fell 33 cents to settle at $61.14 per barrel, while West Texas Intermediate fell 44 cents to settle at $58.24.
Apparently overlooked was the IEA's contention that the Covid vaccines would help demand recover, and that a rapid stock draw in the second half of the year could prompt the Organization of the Petroleum Exporting Countries (OPEC) to start unwinding the supply curbs.
Patrick Allman-Ward, CEO, Dana Gas
It won't take very much to put the demand-supply balance back to a negative space
The Paris-based agency maintained its outlook for oil demand growth in 2021 and said a decline in the first quarter of this year from low levels in the last quarter of 2020 would soon reverse.
For his part, Bjornar Tonhaugen, head of oil markets at Rystad Energy, said the IEA's remarks were salient in that they "work as another reminder that oil is not out of the woods yet and that it is premature to overvalue it when the only thing that keeps prices at healthy levels is an artificial supply cut by OPEC and allies."
Trading was also negatively impacted by a British scientist stating that the coronavirus variant found in the county of Kent is likely "to sweep the world" (although the Pfizer vaccine has proven to be an effective defence against this variant).
Meanwhile, Bloomberg on Thursday reported that crude inventories in Cushing, Oklahoma, and on the U.S. Gulf Coast have sunk to the lowest levels in more than six months, part of a rebound of a commodity it attributed to "aggressive supply cuts from OPEC and its partners, falling output in the U.S., and resilient demand in Asia."
Storage tanks in the Caribbean and Canada are also draining, the news agency said.
Of course, some observers pointed out the undesirable flip side of that phenomenon: Patrick Allman-Ward, CEO of Dana Gas, warned that oil's new-found fortunes may end or even reverse if producers resume pumping some of the 10 million barrels of daily output capacity that now sits idled.
Although he said he was optimistic that prices would stay near current levels throughout 2021, he added, "It won't take very much to put the demand-supply balance back to a negative space."