The price of crude oil has recouped everything it lost during the COVID-19 pandemic of 2020 as demand for petroleum products returned.
In January 2020, crude oil traded in a range of $ 60 for West Texas Intermediate on the New York Mercantile Exchange (NYMEX), but began to decline as the global economy collapsed due to the orderly lockdowns. by governments around the world.
By the start of the second quarter, the price of WTI had fallen below $ 20.
Low prices have resulted in lower production in the United States and around the world. US production has increased from 13 million barrels per day (b / d) to 11 million b / d.
The Organization of the Petroleum Exporting Countries and a group of non-member producing countries, including Russia, have decided to cut production by 9.7 million bpd.
As supply decreased and demand increased, the excess supply eventually eased. Crude oil inventories in the United States reached an all-time high of 540 million barrels in June 2020, but they declined to 484 million barrels, according to the Energy Information Administration.
Crude oil prices have gone up. Oil on the NYMEX closed at $ 68 a barrel on June 2 for 30-day delivery and at $ 71 on the international exchange for Brent.
Bloomberg reports that the underlying structure of oil has firmed up. The spread between the two closest December contracts for WTI is heading towards the strongest close since 2019, indicating expectations of market tightening.
Optimism about increased activity this summer and the continued reopening of the US economy also points to stronger demand.
Questions about supply remain, but OPEC agreed on June 1 to maintain the current pace of increasing oil supplies until July. OPEC launched a policy in May to release an additional 2.1 million bbl / day.
The Iranian nuclear negotiations pose problems of additional supplies on the world market. If the United States and other countries come to an agreement with Iran, the sanctions could be lifted and an additional 500,000 bpd could hit the market.
Alex Mills is the former president of the Texas Alliance of Energy Producers.