Yahoo Finance Coronavirus: Oil investors weigh OPEC+ meeting, infection rates and Chinese demand
The coronavirus crisis has hit the oil industry hard, with global demand collapsing by 10.75 million barrels a day in the first half of the year.
But prices have recovered significantly since US crude futures turned negative for the first time in history in April, when a glut threatened to overwhelm global storage facilities.
An announcement on Chinese orders overnight, a looming meeting of leading producers and the latest news on COVID-19 cases and lockdowns in major markets are all being closely followed this week for signs of what comes next.
Chinese demand
Record imports of crude from China have boosted oil prices in recent weeks, while news of China’s plans to ramp up orders from the US again briefly boosted prices on Monday.
West Texas Intermediate crude (CL=F) and brent (BZ=F) oil futures rose in early trading in Europe on Monday, reaching $42.46 a barrel and $45.23 a barrel respectively, though they were flat again by midday in London.
AJ Bell investment director Russ Mould noted brent’s rise beyond $45 took it to its “highest levels since before the pandemic hit.”
It came after Reuters reported China planned to ship at least 20 million barrels in August and September.
READ MORE: FTSE rises as Chinese stimulus and oil demand lifts mining stocks
Recent economic data has shown Chinese economic recovery proceeding less strongly than expected by analysts, however. Figures suggested factory growth was slower-than-predicted and retail sales saw a surprise fall, alarming global investors last week.
Francisco Blanch, a commodity strategist at Bank of America Securities (BOAS), also noted China’s stock increase was “likely permanent” amid a “geopolitical power race” with the US.
OPEC+ meeting
A meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will attract significant attention on Wednesday.
Countries in the allegiance agreed to record cuts in supply to shore up prices after the pandemic first hit and started to hammer global demand.
Blanch said prices had been boosted by investors' confidence that compliance would hold with the reduction.
“Brent could easily rally to $60/bbl next year and flip into backwardation, if OPEC+ compliance holds and the pandemic eases,” he wrote in a note on Friday.
Four sources told Reuters on Monday that producer countries’ compliance was at around 95% in July. A ministerial committee will meet on Wednesday to review the industry’s prospects and how to sustain and improve compliance in the cartel.
It also reported Iranian oil minister Bijan Zanganeh’s upbeat comments on compliance on Monday. “OPEC’s performance has been successful because the price of oil has risen from $16 in May to around $45 and has stabilised.”
Global recovery
Blanch said steady recovery in demand was fuelling higher prices, despite the continued virus and economic troubles of most major economies.
Some expect fresh COVID-19 outbreaks to hit consumption heavily if many countries re-tighten lockdown rules and limit travel and economic activity. Several European countries have announced new restrictions in recent weeks as new infection rates have edged higher since lockdowns first eased.
“The large, and in some countries, accelerating number of COVID-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” said the International Energy Agency in its July report.
But Blanch said BOAS see steady demand recovery “continuing” despite recent signs in the market, which alongside collapsing US shale output and OPEC+ compliance could sustain prices. He noted global oil stocks were almost back to normal excluding the US and China, making large deficits possible next year.
A string of major companies have announced oil refining facilities will be shut for good in Asia and North America, amid uncertainty over their longer-term viability.
Luke Templeman of Deutsche Bank also highlighted in a note that a shift away from fossil fuels was the “hot topic” of the moment, adding to the pressures to lower production.
BP has vowed to cut and oil and gas production by 40% by 2030, saying the current crisis had made it accelerate its greener energy drive and stated ambition to be net-zero by 2050.
