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Oil Prices Rise Over Optimism in Market Equilibrium

  • An oil rig sits off the shore at sunset in Huntington Beach, California, May  11, 2020.

    An oil rig sits off the shore at sunset in Huntington Beach, California, May 11, 2020. | Photo: EFE

Published 26 May 2020
Opinion

For the oil price increase to be sustained, demand must continue to recover and reach normal levels.

Oil prices surged on Tuesday as the global oil market hopes to balance out soon, with supply cuts appearing to meet the gradual pickup in demand.

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Oil Prices Peak as Countries Lift COVID-19's Restrictions

"The second half of 2020 may be the time for partial recovery of COVID-19 and this will allow higher oil prices," Rystad Energy's Head of Oil Markets, Bjornar Tonhaugen, said.

For the oil price increase to be sustained, demand must continue to recover and reach normal levels.

To this end, on June 9, the Organization of Petroleum Exporting Countries and its allies (OPEC +) will analyze a renewal of the current agreement to keep 7.7 million barrels per day out of the market during the second half of 2020. 

If they do not renew the agreement, the rise in oil prices will disappear sooner or later. Right now, a billion barrels of oil are stored on land and sea. 

In the second half of the year they must be reduced before "normal" oil prices return. "The market has escaped a collapse. While the world seems to be slowly recovering, so is oil," Tonhaugen said.

However, if the world is hit by a second pandemic wave, oil will follow.

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