Oil prices staged a minor recovery in May as major global economies tentatively emerge from lockdown. Oil demand has fallen by more than 20 mn b/d in the last three months, and the industry continues to face a murky future.
Oil producing heavyweights Saudi Arabia and Russia have over-delivered on promised output cuts and US shale production fell off a cliff at the start of April when prices fell under break-even levels for many wells. But markets were expected to remain highly volatile until it became clearer how much of the damage to the global economy inflicted by the Covid-19 virus can be repaired.
Ice Brent crude futures closed out May at $35.33/bl, a gain of more than $10/bl on April. Diesel and gasoline prices on European spot markets reached parity, as summer demand picked up for gasoline. Diesel stocks were being supplemented by unwanted jet kerosene added to the diesel pool as airline demand dipped by 70% in the first quarter of the year.
There is still a glut of oil in Europe with more than 17 mn barrels of product on stationary tankers in the North Sea. Asia looks the most likely destination for the excess oil as countries such as China and South Korea get the Covid pandemic under control. The road to recovery looks a lot longer in the Americas, the current epicentre of the pandemic.
UK pump prices for diesel and gasoline have hit lows not seen since 2016, but at no point reflected the huge price falls seen on international markets since the virus took hold in March. Domestic demand picked up steadily in May and will be boosted by the lifting of the lockdown and should be boosted still further by government advice to avoid public transport where possible. But the stimulus of low prices on demand will be undermined by the terrible toll the virus has taken on the economy.
Typically, the start of summer signals a jump in gasoline demand in the US for the so-called ‘driving season’. Usually this offers opportunities to European refiners to offload excess gasoline at a decent profit. Unfortunately, there is nothing typical or usual about 2020.
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