Crude Achieves More Monthly Gains While Analysts Contemplate Slow Economic Recovery

However, worries build over the prospect of another inventory glut: File Image/PixaBay

Despite volatile trading patterns, the Brent and West Texas Intermediate crude benchmarks on Friday reported a fourth and third month of gains respectively, thanks to news that U.S. oil production in May fell a record 2 million barrels per day (bpd) to 10 million bpd during the government-imposed Covid lockdowns.

Phil Flynn, senior market analyst at Price Futures Group Inc., explained the implications: "We’re starting to see the impact in barrels; this suggests that we will see a tighter market in the future, and if the economy turns around we will have trouble meeting demand.”

Brent on Friday rose 24 cents, or 0.7 percent, to $43.18 per barrel, while WTI gained 35 cents, or 0.88 percent, to settle at $40.27 per barrel.

Forecasts of economic recovery in the wake of the lockdowns have been equally volatile, influenced greatly by 24/7 media coverage of the rising virus rates in the U.S. (now said to be on the decline), but on Friday a Reuters poll showed analysts to be in a somewhat optimistic mood, forecasting Brent to average $41.50 per barrel in 2020, up slightly from $40.41 in last month’s survey; WTI rose to $37.51 per barrel from June’s $36.10.

Frank Schallenberger, analyst at LBBW, said an effective vaccine for the virus could fast-track the economic recovery: “A breakthrough of the $40-$45 range is possible if the comeback of the global economy will be faster and stronger than expected."

Of concern, though, to market players is the possibility of an upcoming inventory glut: a survey released on Friday showed the output of the Organization of the Petroleum Exporting Countries (OPEC) rose by over 1 million bpd in July as Saudi Arabia and other Gulf members ended their voluntary extra supply curbs and other members made limited progress on compliance.

Also of concern as summer winds down is U.S. gasoline refining margins at their lowest seasonal level in years as Covid fears compel Americans to stay off the roads - at least for long, extended time periods.

Presumably crude traders moving forward can take hope in vaccines coming closer to meeting regulatory approval (GlaxoSmithKline and Sanofi Pasteur were the latest pharma giants to announce on Friday that they will supply its vaccine to the U.S., to the tune of 100 million doses); as for the other concern affecting crude prices - the prospect of more lockdowns - a study published this week in the Lancet medical journal compared cases in 50 countries and concluded that lockdowns did not have an impact on death rates - but prior health levels did.