In a week when the US committed to cutting greenhouse gas emissions in half by the end of the decade, the oil market remained volatile as uncertainty rules the day.
The economic recovery continues to be choppy and the pandemic continues to claim thousands of victims every day. In Friday trading, Brent crude was priced above US$65 with West Texas Intermediate (WTI) above US$61 a barrel.
The oil price fell at the close of the week as the pandemic worsened in South-East Asia with record numbers of new cases and increased deaths. India is the world’s third largest oil consumer and with renewed lockdown in place, there are fears that demand for fuel could fall more than 20%.
Oil demand was expected to increase in the second quarter and beyond, but with the setback, refiners will soon be adjusting capacity due to low demand.
The US pledged to reduce emissions and combat the growing threat of climate change “to overcome the existential crisis of our time”.
The US hosted a virtual Leaders Summit on Climate, where the US President, Joe Biden committed America to swift and rapid action to cut emissions by half, laying part of the blame firmly at the doorstep of the oil companies.
The British Prime Minister called it a “game changing” announcement and pledged his on-going support. The US also committed to rejoining the Paris Agreement, promising a net-zero economy by 2050, with a more stringent emissions target by 2030.
It’s been a year this week since the oil price fell into negative territory following the initial pandemic lockdown that destroyed global oil demand.
“Black Monday” seems a distant memory as demand slowly returned and confidence quickly came back to the market with the oil price up around 33% this year.
The actions of OPEC+ were hailed as being part of the solution that helped re-balance the market with more than 3 million barrels off the market.
Saudi Arabia reduced its output beyond expectations and with OPEC+, will gradually release oil back to the market until July. The OPEC ministerial monitoring committee is scheduled to meet next week.
Despite the praise for the efforts of OPEC+, the NOPEC bill is back in the headlines after the US House Judiciary Committee cleared the way for a bill that would allow antitrust lawsuits against OPEC over production cuts and what many in the US government believe is manipulation.
The OPEC Secretary General, Mohammad Barkindo has reportedly sent a letter to all members, according to Reuters, encouraging them to engage with their contacts in the US administration and make them realise the disadvantages of such a bill.
This is not the first time OPEC has faced such pressure in the past 20 years, but the bill’s never progressed.
OPEC has always maintained that such a bill could undermine essential trade and energy relations. This new bill will also take time and there’s no guarantee it will be passed but it’s progress will be watched with great scrutiny.
Demand from China up
Oil demand from China is on the increase with imports from Saudi Arabia up 9% in March, according to KSA customs figures.
Economic activity around the globe is picking up with encouraging data from the US and from key European countries. Jobless claims are falling in the US for the second consecutive week with many analysts hoping this will remain the trend. The health of the global economy will be the main driver for renewed oil demand.
Fresh lockdowns and pandemic panic will continue to impact global oil demand.
Many international flight routes remain closed and business has been curtailed with economic activity far from what was once normal.
It’s a time frame out of everyone’s control and that’s never easy for investors and producers to plan for the future.