The Market Has Escaped a Collapse

The oil market has escaped a collapse, according to Rystad Energy’s head of oil market research, Bjornar Tonhaugen.

“It’s not only oil that has been hit by Covid-19, it’s the whole world, we shouldn’t forget it. And as the world seems to recover slowly, so does oil,” Tonhaugen said in a statement sent to Rigzone on Tuesday.

“As things are now, this year’s second half is poised to be the time of partial recovery from Covid-19 and also the path to higher oil prices,” he added.

Tonhaugen outlined that the 16 million barrel per day (bpd) oversupply in crude during April could be reversed altogether by June, “helped by a four million bpd recovery in crude demand and a 12 million bpd cut in crude supply”.

He warned, however, that the world’s available crude production capacity that could come back onstream “in a matter of months” is 13 million bpd.

“For this oil price rally to be sustained, demand must continue to recover closer to normal levels at the same time as global supply is withheld from the market,” Tonhaugen stated.

“This is exactly what OPEC+ knows and is why the upcoming OPEC+ meeting on June 9 will need to see a rollover of the current agreement to hold 7.7 million bpd off the market for 2H20. Otherwise the oil price rally will fizzle out sooner rather than later,” he added.

“And don’t forget the one billion barrels of crude built into onshore and offshore storage during 1H20 that needs to be worked down before the return to ‘normal’ oil prices can occur,” Tonhaugen continued.

As of May 25, there have been 5.3 million confirmed cases of Covid-19 around the world, with 342,029 deaths, according to the latest information from the World Health Organization.

To contact the author, email andreas.exarheas@rigzone.com