Minus the April 20 madness - a true Black Swan for oil market - the oil price recovery, two months on either side, has been rather V-shaped. Benchmark Brent crude oil has surpassed $40/bbl, which seemed highly unlikely just a month ago. Then came the historic Opec Plus Plus meeting, with an unprecedented deal. Production cuts were promised and later delivered, with unexpectedly high rate of compliance from all major partners.
Brent price has doubled in less than two months, which is being referred as the quickest rebalancing act in the oil market history by observers. Mind you, the pandemic has not subsided. Forget the second wave, the pace that it has gathered, at some of the world’s largest consumption driven emerging market economies, tells the virus is here for a long haul.
Demand projections have been rather lofty, ever since the virus lost its grip and flattened in Europe and the USA. Some see the demand going back to pre-Covid levels by as early as 1Q2021. That may or may not be the case – but the expected demand drop for 2020 may well have been underestimated.
China is by and large back and running. But things are looking rather bleak in almost 2/5th of the world, led by worrying signs in India and Brazil. The US oil rig count at 200 is at its lowest in many weeks and is down 75 percent year-on-year. The non-compliant Opec members have vowed to not cheat this time around – which has given fuel to the oil price rally.
Oil price forecasting is funny business and has embarrassed the best over the years. The last month has seen revised forecasts, predicting an earlier rebound in global demand. A price recovery owing to curtailed supply and longer-term prospects of an Opec deal is one thing. Basing the recovery on double digit demand recovery as early as first half of 2021 is entirely another. The bulls have long been in the waiting and may well be anxious. But it appears the pandemic fatigue is setting in the oil market as well. Don’t forget there is no such thing as a Covid-free country in modern times. It is either a Covid free world or nothing.