Lockdown Easements Boost Crude Prices, But Analysts Wary Of What Politicians Will Do Next

by Ship & Bunker News Team
Tuesday May 19, 2020

Increasing energy demand due to the coronavirus lockdown easements combined with producers  abiding by their vow to slash output were the elements once again cited for Tuesday's crude price gains, in which the U.S. benchmark rose by over 2 percent.

West Texas Intermediate gained 68 cents, or 2.14 percent, to settle at $32.50 per barrel, while Brent crude shed 16 cents, or 0.46 percent, to settle at $34.65 per barrel.

The numbers were especially impressive given the historic plunge below zero a month ago on the eve of the May contract's expiry and during the height of the government-imposed lockdowns that crippled the world economy.

So far, the country benefiting the most from the lockdown easements is the same country from which the coronavirus originated: China's refineries processed the equivalent of 13.1 million barrels per day (bpd) in April, up from a 15-month low of 11.78 million bpd in March, according to calculations based on official data released on May 15.

Also, for the first four months of the year, China exported 1.72 million bpd of refined products, up 15.1 percent from the same period in 2019.

But gains are hardly confined to a single country: Saudi Arabia's state-owned Saudi Aramco on Tuesday earned headlines for being the first major global oil producer to see its stock recover to the level it traded at before the kingdom's price war with Russia, climbing 3.1 percent in Riyadh for a record six straight days of advancements.

However, perhaps fully appreciating the severity of the response by governments across the globe to  the pandemic, and considering health officials are already warning of a second wave of the virus later this year, analysts tempered Tuesday's good news by striking a tone of caution.

Salih Yilmaz and Rob Barnett, analysts at Bloomberg Intelligence, noted that while oil-output cuts across the world have helped push prices above $30 a barrel, they said price volatility may persist, "given uncertainty over the relaxation of coronavirus pandemic lockdowns."

While business communities in many countries merely hope politicians won't revive the draconian restrictions that has ruined millions of lives and caused a global recession, in the U.S. the battle lines are being drawn between stubborn elected officials and one brash billionaire in the White House.

New Jersey governor Phil Murphy, Michigan governor Gretchen Whitmer, Illinois governor J.B. Pritzker, and Los Angeles mayor Eric Garcetti are among the politicians who refuse to fully reopen for business until a vaccine for Covid-19 has been found; meanwhile, president Donald Trump has warned them the country will re-open "vaccine or no vaccine" and that Washington will "step in if we see something going wrong, or if we disagree" with how states are lifting their lockdown orders.

The unwillingness of many citizens and some government leaders to obey health officials is based on the perception that politicians have overstepped their boundaries and that the severity of the virus - which to date has killed over 321,000 people around the world, far less than the death rate of other viruses - has been oversold by these officials and media.

By contrast, one element not oversold is the wreckage caused by the lockdowns: in the U.S., the Congressional Budget Office on Tuesday projected a 38 percent drop in GDP in the second quarter with over 26 million Americans out of work, as well as a $2.1 trillion increase in the deficit.