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Lockdown relaxations help crude oil recover, but its not out of the woods

Friday’s price movements stand as an example of how vulnerable crude oil prices are to the demand situation.

Published: 23rd May 2020 09:27 AM  |   Last Updated: 23rd May 2020 09:27 AM   |  A+A-

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas. (Photo | Reuters)

Representational image (File photo | Reuters)

By Express News Service

NEW DELHI: Steadily easing lockdowns across the world and the consequent uptick in fuel demand has resulted in crude oil prices rising at a fair clip over the past month, trading at around the $34-36 per barrel mark currently. However, while the commodity has doubled in value since its record low of $16 a barrel in late April, analysts note that this upward surge is unlikely to be sustained for long.

Friday’s price movements stand as an example of how vulnerable crude oil prices are to the demand situation. Renewed worries over China’s post-lockdown economic recovery saw Brent crude lose over 5 per cent of its value in just one session. “The past month’s price increase has primarily been due to the easing of lockdowns globally and the expected improvement in demand. But, any price increase will eventually see more production come online, which may result in another sharp decline,” said a senior executive at a State-run oil marketing company.

Apart from China, fuel demand in the world’s third largest consumer of crude — India — is also a worry. According to industry sources, fuel demand has been rising following a widespread easing of transport and industrial restrictions. But it is still only around 60-70 per cent of the normal levels.

In fact, according to the International Energy Agency (IEA), India’s petroleum product demand is expected to decline by as much as 8 per cent in the calender year 2020. “We expect oil demand to fall by 180 kb/d YoY in Q1FY20 and 1.3 mb/d in Q2FY20. Consumption should return to year-ago levels by Q4FY20. Overall, Indian demand is expected to drop by 415 kb/d in 2020. Gasoil/diesel and gasoline will be the most affected,” IEA said in its May report.

Analysts note that any sharp upsurge in supply, despite the OPEC+ deal to make production cuts, or any new decline in demand may well see crude oil dip to multi-decade lows again.

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