Oil prices spike late on slow Gulf of Mexico rebound, bullish 2021 EIA report

Houston — Crude oil prices spiked late June 9, ending in positive territory after trading down for most of the day, following a bullish US government report on 2021 global oil demand and news that Gulf of Mexico production was returning slower after Tropical Storm Cristobal.

After falling below $38/b, front-month NYMEX WTI ended up rising 75 cents/b and settled at $38.94/b, while ICE July Brent ticked up 38 cents/b and settled at $41.18/b.

On June 8, WTI had retreated after flirting with $40/b late in the week ending June 6 as OPEC+ agreed to keep additional barrels offline, at least through July. After its historic negative-pricing event in April, WTI has climbed to almost $40/b from $10/b as parts of the world began reopening post the coronavirus pandemic.

The short-term energy outlook from the US Energy Information Administration helped boost prices June 9 by estimating that global oil demand will mostly recover in 2021, although demand remains down about 16.5% in the second quarter of this year.

Two other factors supporting higher crude prices are the slow return of oil production in the US Gulf and indicators that Nigeria is struggling to sell its crude oil supplies, meaning that one of the key OPEC members failing to meet its quotas with the production cutback agreement may be forced into greater compliance anyway, said Edward Moya, senior market analyst with OANDA.

More US Gulf crude production slowly returned on June 9 as the Bureau of Safety and Environmental Enforcement reduced its shut-in estimate from a peak of 635,781 b/d down to 575,541 b/d, meaning that 31% of US Gulf production still remained shut in.

As for refined products, NYMEX July RBOB was up 1.53 cents/gal to $1.2103 and July ULSD rose 3.34 cents/gal at $1.1547/gal.

TUG OF WAR

Overall, there's greater optimism that global crude oil supply-and-demand fundamentals will balance in 2021, Moya said.

Still, it's going to take some time for the markets to find that balance, he said. Many oil-producing countries are eager to ramp up their oil outputs, but those sentiments do not mesh well with the slow pace of demand recovery thus far.

"Oil prices are playing 'tug of war' between improving crude demand prospects and deteriorating supply-side fundamentals," Moya said. "WTI crude will likely struggle recapturing the $40 level again unless a surprise production disruption occurs."

In the meantime, the so-called OPEC+ group is working to manage the markets on a month-to-month basis and is not focusing on daily oil price swings, said Matt Reed, vice president of Foreign Reports, which focuses on Mideast oil politics

"OPEC telegraphed its next move well in advance and traders are moving on," Reed said. "Their plan is to manage sentiment and fundamentals one month at a time going forward."

However, the energy sector is far from out of the woods as the coronavirus pandemic rages on. COVID-19 cases are rising in parts of the US as well as other highly populated nations, including Brazil, Mexico, Russia, India, Indonesia and much of the Middle East.

Bjornar Tonhaugen, Rystad Energy head of oil markets, said he is increasingly concerned about a second wave of the coronavirus, or even an extension of a first wave that has not really faded. He noted that the World Health Organization reported the most new COVID-19 cases ever on June 8.

"Make no mistake, this is chilling," Tonhaugen said in an analyst note. "Both for the world from a medical perspective but also for the energy markets. A second wave of the pandemic isn't such a distant possibility any more and if it is realized, oil demand, which has slowly been recovering, might plunge back to lock-down levels."