The oil market got a welcomed boost this week as global economic indicators improved and American crude stockpiles fell. Both benchmarks saw front-month contracts rise to their highest level since mid- March. In Friday trading, Brent crude was above US$67 with WTI close to US$64 a barrel.
The International Energy Agency and OPEC delivered their monthly reports this week, both upgrading global oil demand growth figures. The IEA raised its forecast for this year by 230,000 barrels a day, with expectations of an increase of 5.7 million barrels a day from last year. That should put global oil use at 96.7 million barrels a day.
OPEC agrees and sees stronger economic activity this year, citing “additional US stimulus measures and an accelerating recovery in Asian economies are expected to continue supporting the global economic growth forecast, which is now revised up to 5.4 percent.” The organisation adds a word of caution in terms of the uncertainty around the spread of COVID-19 and puts global oil demand slightly lower than IEA projections at 96.5 million barrels a day this year. The OPEC report said the assumptions were based on the hope that the roll-out of vaccinations continue. “COVID-19 will be largely contained in the sense that the majority of the population in the advanced economies will be vaccinated and that the pandemic will not pose a major obstacle for emerging and developing economies”
Crude oil inventories in the US fell by 5.89 million barrels last week, bringing available supply to its lowest in two months, but stocks are still above the 5-year average. Gasoline inventories were slightly higher last week and refineries in the US continue to process crude oil at the highest level since March 2020. The summer driving season is not far away, so refiners are looking forward to a busy season. Earlier this month the US Energy Information Administration said it expects a 15 percent increase in US highway travel this summer but does not expect it to be as busy as 2019. The EIA sees demand improving for jet fuel as more passengers feel secure about travelling and more routes open up.
OPEC is happy to see global oil inventories on the decline as it continues its efforts to see stocks below the 5-year average. In its report, the organisation noted that “reductions in surplus inventories as well as an expected pick up in product demand will pave the way for a cautious recovery of oil market balance in the summer months, supporting refining margins and throughputs.” The next virtual OPEC+ meeting will be held at the end of this month.
Economic data in the US is looking more positive this month as unemployment falls and industry activity picks up. This will be good news for energy demand in the long term. The March MHI Business Activity Index that measures heavy industry activity was the strongest on record with business at an all-time high. The president of Prestige Economics, Jason Schenker says there was “a massive boom in e-commerce as well as concerns about steel prices, hiring, logistics, and supply chain,” adding “there are reasons to be optimistic for material handling in the second half of 2021 and in 2022, especially given recent future new orders data.” On the downside, Schenker says “while industrials and manufacturing are strong, US joblessness could take much longer to recover, given the COVID drag on the service sector, tourism, entertainment, and leisure.”
The world is ready and eager to return to some sense of normalcy and as vaccine delivery increases and lockdowns are lifted, optimism abounds for a stronger global economy. The uncertainty about the containment of the virus continues to be the stumbling block and will no-doubt remain headline news for months to come.