A second straight week of gains for oil, yet the rebound barely looks like it has legs. If there’s one thing to be expected of the coronavirus, it is to expect the unexpected – and that applies to traders of all sizes and stripes.
Since then, the demand story in oil has barely improved, which makes the price rebound of the past two weeks suspect – and the inability to squeeze another gain on Friday totally understandable.
The only real support for oil since the coronavirus broke is the threat of supply outages – either from strife in LIbya or the Trump administration’s newest sanctions aimed at the Rosneft-Venezuela pact or OPEC’s desperate attempts to manufacture a shortage with Russian collusion.
According to Russel Hardy, head of top oil trading house Vitol, the pandemic in China combined with a relatively-kind winter could result in a demand deficit of 200 million barrels by the end of the first quarter – or a net loss of 2.2 million barrels per day. Peak demand lost during the worst of the first quarter could be 4 million bpd, the Vitol chief added.
That seems to match what the International Energy Agency says. The IEA forecasts that demand for oil will be 435,000 barrels less per day versus the first quarter of 2019.
And what does OPEC offer?
A 600,000 bpd cut if Russia agrees to cooperate – if not, half of that, reportedly via a three-way pact among Riyadh, the United Arab Emirates and Kuwait, speculation about which Saudi Energy Minister Abdulaziz bin Salman said at the weekend was “ridiculous”.
Whatever the case, oil’s likely to see more volatility in the coming days and weeks as Russia continues to parry off OPEC demands to expedite cuts, while the Saudis talk up the market. Amid these, the Libyan oil blockade will likely continue, while the market wonders whether Venezuela will get some of its oil out by by teaming with another Russian company to skirt the Trump administration’s newest sanctions on Caracas.