The euphoria of rising oil prices did a U-turn this week with six days of declines and fears of lower oil demand.
The sentiment turned gloomy as the oil price fell nearly 10%. In Friday trading, Brent crude was priced below US$63 with West Texas Intermediate (WTI) down lower than US$60 a barrel.
Pandemic panic appears to be resurfacing in Europe as numbers continue to rise and fears of vaccine safety cause confusion.
France imposed a series of regional lockdowns and Italy and Germany acknowledge they are dealing with the third wave.
Other countries like India see the numbers rising, reporting highest rate of infections so far this year. Further lockdowns will continue to impact global travel and economic demand and consequently global oil demand.
The recent volatility in the market was always a concern and the decision from OPEC not to release any barrels earlier this month is now being welcomed.
The market is hoping they will maintain this policy in the April meeting. The CEO of CMarkits, Dr. Yousef Alshammari says that “OPEC+ and Saudi cuts should keep the market in check".
Alshammari says he believes oil prices are undergoing some sort of correction as prices had "recovered much faster than demand on optimism of vaccine roll over".
Looking at oil demand, he says it’s still about 7% lower than pre-crisis levels, especially in Europe.
Investment bank Goldman Sachs says to look on the bright side and see this price fall as a buying opportunity.
The bank says the price is taking “a big breather” and still sees Brent crude reaching US$80 a barrel in the coming months.
Weak demand in Europe and a strengthening US dollar are partly to blame, but the bank says these factors are temporary and they expect “rapid oil market rebalancing” with an increase in global oil demand later this year.
The International Energy Agency released its 2021 medium term market report this week with some optimistic news for oil producers.
Signs of rebalancing
There are signs of rebalancing in the markets, but demand may never return to "normal".
"Global oil demand is set to rise every year through 2026,” with no clear peak-oil time frame in place.
The agency says that "stronger policies and behaviour will be vital to bring about a peak in demand in the near future".
Looking ahead to prospects for a rise in global oil demand, the IEA also said that "road transport in emerging economies has rebounded from early 2020 lows, driving up oil demand and global emissions".
With such economic uncertainty around the world, particularly in light of the Covid-19 situation, we can expect to see more volatility in the market.
Oil demand took a hit in 2020, down nearly 9 million barrels a day all year and the IEA fears demand "is not expected to return to that level before 2023".