For two weeks, oil has been trying to rise, but the historic collapse is hard to recover from. Quarantine has really hit the oil industry that the likelihood of an increase in oil quotes is catastrophically small.
For prices to climb up, demand must reach at least 100 million barrels per day. However, reaching such will probably take more than a year, or possibly much more.
Last week, Warren Buffett sold all his shares in the four major US airlines - the American Airlines (AAL), Delta Air Lines (DAL), United Airlines (UAL) and Southwest Airlines (LUV). This suggests that demand in the airline industry will not return to 2019's level, and oil will not grow in the near future.
This is exactly what Ed Morse of Citigroup calls "a winding, bumpy road to oil production."
Rebounding oil quotes up will be a difficult process, as the scale of the decline in demand is large. In addition, according to estimates by the International Energy Agency, consumption in May will decrease by 25.8 million barrels per day, and in June, by 14.6 million barrels. In December, it will be 2.7 million per day, still below 2019's level.
Recovery in the oil industry itself is ambiguous. Many fear that it can quickly reverse, as a second wave of quarantine is planned, the evidence of which is the introduction of social distancing in learning and work.
Moreover, practice shows that diesel, which powers trucks and industries, holds up better than gasoline, which works much better than jet fuel. Even as demand increases, crude oil consumption may remain low, as refiners will first have to dispose of the millions of gallons of petroleum products accumulated in recent weeks.
"We see improvements in all three markets. May observed a growth trend in Europe, which we are also seeing in the US and Asia," said Darren Woods, CEO of Exxon Mobil. "There are some, I would say, that are encouraging early signs," he added. Urals, Russia's leading export brand, grew after Moscow cut exports to a 10-year low.
The very sluggish improvement is due to the OPEC + reduction contract.
"Globally, we are at an inflection point where we have experienced the worst for destroying oil demand, but not for destroying supply," said Olivier Jakob, managing director of Petromatrix. "This should help stabilize prices," adds Jakob.
However, at the moment, oil tanks are almost full, and June futures expire in the middle of this month.
In addition, if President Trump resumes the trade war with China, the impact on the global economy, as well as supply chains, will be enormous. Of course, there is a difference between Trump's tariff threat and the president actually imposing new tariffs in China.
Realizing this, China is preparing for an oil embargo by buying oil, relying on its low prices, which can affect any country in the world.
