Oil price recovery sets record after record drop

Bloomberg:

Oil posted its best quarter in nearly 30 years, bouncing back from this year’s historic price crash.

Futures in New York surged 92% in the three months through June 30th following crude’s worst quarter on record, buoyed by OPEC+ production cuts and rebounding oil consumption in post-lockdown China. The market’s climb from negative territory in April has been swift but bumpy, with the U.S. benchmark struggling to hold above $40 a barrel amid a stubborn supply glut and a resurgence of Covid-19 cases that’s darkened the demand outlook.

“It’s not going to jump back up to $60 overnight, but to get to where we are now from where we were at is an incredible story,” said Phil Flynn, an analyst at Price Futures Group Inc. How quickly the market can complete its recovery is an open question. “Coming out of the rut will have to happen one day at a time,” he said.

While demand is gradually improving, it’s still a long way off pre-crisis levels. In the U.S., a spike in virus cases is prompting many states to pause or reverse re-openings, which could curb summer travel just as fuel consumption was beginning to ramp up. Across the Atlantic, European Union governments extended a travel ban for U.S. residents.

Rising American inventories are also weighing on prices, which are still down more than 30% so far this year. Crude stockpiles have expanded for the last three weeks to the highest level on record, while diesel supplies have swelled for 11 of the last 12 weeks.

The tide may turn once the Energy Information Administration releases its latest inventory data on Wednesday. The industry-funded American Petroleum Institute reported that U.S. crude stockpiles declined 8.16 million barrels last week, according to people familiar with the data. If confirmed by the government report, it would be the largest draw since December. Supplies in Cushing, Oklahoma rose by 164,000 barrels, the report said.
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While the price has recovered the demand side is still below the number needed to return many of the workers who were laid off because of the pandemic inspired demand decline.  But jobs are slowly returning despite the recent spike in COVID cases.  Most of these new cases appear to be young people who either participated in the mass gatherings and riots following the death of George Floyd.  These people live in major cities and not in the areas where oil field workers are located.  It is possible that some of these workers could have been hanging out in bars which have also been blamed for the spread of the virus.