But Deloitte warns that consolidation will be the deepest the industry has ever seen: File Image/PixaBay
Even though the naysayers insist the current oil rally is oversold or headed for a significant pullback, traders caused crude prices on Monday to rise yet again, this time by 2 percent, on the strength of plummeting U.S. and Canadian oil rig counts contributing to an anticipated tighter supply.
Also supporting prices was the continued relaxation of government-mandated lockdown orders in response to the coronavirus pandemic, although rising infection rates in some parts of the world have raised questions as to whether more restrictions will be enacted in the near future.
Brent settled up 89 cents, or 2.1 percent, at $43.08 per barrel, while West Texas Intermediate settled up 90 cents, or 2.3 percent at $40.73 per barrel.
Gene McGillian, VP of market research, Tradition Energy
The market continues to move higher on the expectations that things are getting back to normal
Gene McGillian, vice president of market research at Tradition Energy, remarked, "Even though there seems to be more worries about COVID, the market continues to move higher on the expectations that things are getting back to normal."
Still, experts say the oil rally is succumbing to poor refinery margins and at-capacity storage levels: a trader told media, "Margins are not at the bottoms but they're very bad - that's not going to help demand; we see these potential spikes in COVID-19, which are also not going to help matters.
"The market was overdone and is going to need to retrace to reflect the realities now."
A refiner was quoted as saying, "We haven't bought anything in the last several weeks as everything is so expensive; CPC is still the most affordable, but still 20-30 cents away from profitability.
"Many Mediterranean refiners have cut runs, so hopefully weaker demand may push differentials down."
Furthering this view is the argument that the surge in demand from crude came from China, and sources say independent refiners in that country have shied away from the higher prices and cut runs as they await new quotas from the government for crude imports.
Undoubtedly, the devastation of the lockdowns on the energy industry are only starting to be fully understood, and Deloitte on Monday released a study postulating that U.S. exploration and production companies could write down the value of their assets by $300 billion, with significant impairments expected in the second quarter.
Duane Dickson, vice chairman at Deloitte, said, "As COVID-19 impacts amplify pressures on shale companies through 2020, a wave of impairments may prompt the deepest consolidation the industry has ever seen over the next six to 12 months."
However, the U.S. oil benchmark has gained more than 200 percent due to production cuts as well as improving demand since delving into negative territory during the height of the lockdowns, and the only thing threatening continued recovery is governments following the advice of health officials and enacting more stay at home orders.
On that score, Dr. Tom Inglesby, director of the Center for Health Security at Johns Hopkins University, provided a measure of reassurance by telling media that despite significant infection increases in some U.S. states, "I don't think we need to go into lockdown in these places"; instead, "We should be encouraging people to wear face coverings, to stay at a distance, to avoid large gatherings, to use hand sanitizer or wash your hands."
Unfortunately, the mainstream press's coverage of the infections, while inciting fear, doesn't necessarily hold up to scrutiny: an article last week in The New Yorker reported that 12,673 people "are hospitalized" in Florida with the virus, when in fact that was the number tallied since hospitalizations began in March and the vast majority of these people have since been discharged.
The magazine modified the article, but ex-New York Times reporter Alex Berenson remarked, "The media is so in love with the disaster narrative, so ready to believe the worst, that that figure raises no eyebrows."
Far less media coverage - at least in North America - was given to professor Matteo Bassetti, the chief of infectious diseases an San Martino General Hospital in Genoa, Italy, who told The Sunday Telegraph that COVID-19 is getting weaker and could die out on its own without a vaccine.
He said the virus "was like an aggressive tiger in March and April but now it's like a wild cat; even elderly patients, aged 80 or 90, are now sitting up in bed and they are breathing without help.
"The same patients would have died in two or three days before."