The price of crude has made up for everything it lost during the 2020 COVID-19 pandemic as demand for petroleum products has returned.
In January 2020, crude oil for West Texas Intermediate was trading in the $ 60 range on the New York Mercantile Exchange (NYMEX) but began to slide as the world economy tumbled due to government lockdowns around the world.
At the beginning of the second quarter, the WTI price had fallen below $ 20.
Low prices led to production declines in the US and around the world. US production fell from 13 million barrels per day (b / d) to 11 million barrels per day.
The Organization of Petroleum Exporting Countries and a group of third countries including Russia decided to cut production by 9.7 million barrels a day.
As supply decreased and demand increased, the oversupply eventually subsided. US crude oil inventories hit a record high of 540 million barrels in June 2020, but have fallen to 484 million barrels, according to the Energy Information Administration.
Crude oil prices have risen. Oil on NYMEX closed on June 2nd at $ 68 a barrel for a 30-day delivery and $ 71 on the international exchange for Brent.
Bloomberg reports that the oil’s underlying structure has solidified. The spread between the next two December contracts for WTI is heading for the strongest closing price since 2019, which indicates an expected market tightness.
Optimism about increased activity this summer and continued reopening of the US economy also suggests stronger demand.
Questions remain about the supply, but OPEC agreed on June 1 to maintain the current pace of rising oil deliveries through July. OPEC began a policy in May to release another 2.1 million barrels a day.
The Iranian nuclear negotiations raise questions about replenishment in the world market. If the US and other nations reach an agreement with Iran, the sanctions could be lifted and another 500,000 barrels a day could enter the market.
Alex Mills is the former president of the Texas Alliance of Energy Producers.