Oil Up On OPEC Hopes As Virus Declines and Demand Builds Dominate The Business Landscape

Russia even suggests a crude shortage could occur next month: File Image/PixaBay

The question of whether the Organization of the Petroleum Exporting Countries (OPEC) and allies will hold formal talks to possibly extend production cuts again dominated the concerns of crude traders, who on Thursday expressed their guarded optimism by sending prices upwards, albeit minimally.

Brent  ended the session 20 cents higher at $39.99 per barrel, while  West Texas Intermediate rose 12 cents to $37.41.

Sources told media that concern over a resurgence of U.S. shale production (which is already in the nascent stages) was one reason why Russia only backed prolonging cuts into July; Saudi Arabia, Kuwait, and the United Arab Emirates are not planning to extend cuts of 1.18 million barrels per day (bpd) after June.

Martijn Rats, chief oil analyst at Morgan Stanley, said on Thursday that "Quite often with these production agreements, if only one or two or three of the players start to deviate then it has the habit of sort of falling apart altogether; so it is important that OPEC continues to exhibit a degree of cohesion."

Despite widespread concern that growing demand in the wake of the government-imposed coronavirus lockdowns is still not enough to mitigate massive reserves around the globe, Russia's energy minister believes the back to normal movement is more robust than analysts give credit to and that the oil market in July could face a shortage of 3-5 million bpd.

Indeed, Bob McNally, president at Rapidan Energy Group, believed OPEC's resolve combined with demand recovery is robust enough to avoid a risk of a repeat of oil's "Black April."

Data from the U.S. Labor Department on Thursday showed unemployment claims in the U.S. have declined since hitting a record 6.8 million in late March but are still three times larger than their peak during the 2007-2009 Great Recession; still, analysts conceded the worst is over and pointed to other positive reports, including a smaller-than-expected drop in private payrolls in May and consumer confidence, manufacturing and services industries stabilizing last month.

The overarching factor determining continued recovery is of course COVID-19, and despite the easement of lockdowns the rate of virus infections continues to fall: this was the case in Finland over the last few weeks despite the re-opening of schools in May.

It was also the case in Oregon (where hospitalization rates have dropped) and other states that have eased the lockdowns.

In China, the highly-feared resurgence of the virus has not occurred despite the country re-opening for business - and this prompted Forbes to state that  "Whether it returns again in December is anybody's guess: it might, it might be as bad, it might be worse, it might not be bad at all - remember the first version of SARS ran from November 2002 to July 2003 and was never heard from in a news headline ever again."

Meanwhile, AstraZeneca signed a licensing deal to distribute 1 billion doses of a vaccine to low and middle-income countries, with 400 million available this year; the U.S. and U.K. are set to be sent 400 million doses between them, starting in September.