Meanwhile, OPEC is keen on keeping the lid on U.S. shale output: File Image/PixaBay
One day after optimism that crude producers would agree to an extension of output cuts drove prices up, doubt that these producers would meet to formalize the cuts drove oil down on Wednesday - even though it seems an extension of sorts is a fait accompli.
Brent traded at $38.91 per barrel during Wednesday afternoon, down over 1.5 percent; West Texas Intermediate stood at $36.26, almost 1.6 percent lower.
The previous session's gains were due to traders expecting that the Organization of the Petroleum Exporting Countries (OPEC) would meet with allies this week to discuss the extensions; however, their optimism was quashed when S&P Global Platts, citing unnamed sources, said a date remains uncertain.
Jim Burkhard, IHS Markit
The degree to which [demand] is snapping back offers reason for some optimism
Still, it has been reported that Saudi Arabia and Russia have already agreed to a one month extension: all that remains is formal ratification.
For its part, Eurasia Group believes the eventual meeting will “probably” see the cartel and its colleagues agree to extend the commitment to reduce oil production by 9.7 million barrels per day (bpd) from July to September.
A Russian source familiar with OPEC+ talks on the issue told media that “The plan is to stick to prices of $40-$50 per barrel because as soon as they rise any further to say $70 per barrel it encourages too much oil production, including U.S. shale.”
Meanwhile, demand for crude continues to escalate as the government-imposed coronavirus lockdowns evaporate: responding to its worst recession since World War II thanks to the lockdowns, Italy on Wednesday re-opened its borders to international travellers and dropped the 14 day quarantine requirement for visitors.
Germany will lift a travel warning for European countries on June 15, Switzerland is reopening its borders with Germany, France, and Austria, and Austria is ending border checks with all of its neighbours except Italy; as for Britain, it is talking to other countries about setting up “air bridges” that would allow certain countries or regions to be exempted from quarantine rules.
In New Zealand, the remaining lockdown restrictions on social distancing and group gatherings are being eliminated after recording no new cases in nearly two weeks; in total the country incurred only 22 deaths and 1,504 infections.
By contrast, health officers in Canada, which endured significantly less COVID-19 infections and deaths than many other countries, steadfastly refuse to condone even interprovincial leisure travel.
In China, where the virus began, oil demand has recovered to more than 90 percent of the levels seen before the pandemic, and this prompted Jim Burkhard, vice president and head of oil markets at IHS Markit, to remark, "The degree to which it is snapping back offers reason for some optimism about economic and demand recovery trends in other markets such as Europe and North America.”
As for prevention and treatment of future outbreaks, which is key in fully reviving the world economy, it was reported on Wednesday that Gilead Sciences Inc’s potential COVID-19 treatment, remdesivir, could bring in more than $7 billion in annual sales by 2022.
Incidentally, the enormous money-making potential of coronavirus treatment and cures is reminiscent of the Centers for Disease Control admitting in a Huffington Post story of 2014 that starting in 2003 it played up flu deaths in order to boost sales of the vaccine - a practise that apparently persists today.
Finally, recommendations from Harvard University researchers that are sure to dampen the appetite for leisure travel if taken seriously include refraining from kissing outdoors and wearing masks during sex.