Oil prices settle at six-week high as supplies begin to tighten

Oil prices

Oil prices have staged a significant recovery over the past month, although still quite far from recovering to normal levels. After prices for crude had fallen into the negative for the first time in history, investors and economists around the world were wondering whether this could become the new normal. Many analysts, and even some U.S. regulatory groups, have warned that a second dip into negative territory could be just on the horizon. However, it seems that hasn’t happened yet, as oil prices have settled at a six-week high, up around 80%, since the beginning of the month.

West Texas Intermediate contracts for July delivery, the U.S. benchmark, currently is trading at around $34 per barrel, while international benchmark Brent crude is trading around $36 per barrel. While both have seen around a 5% dip in prices in late Thursday, trading in the mid-thirties is well above what many more bearish investors were expecting.

One piece of news that’s been helping oil prices is the resulting dip in output the U.S. has seen. Around a month ago, there was so much oil with so little demand that there simply weren’t any more places to store all this oil. With many traders looking to sell their contracts before they expired, the influx of oil contracts on the market sent prices plunging into the negative. However, as is the case with economics, falling prices have pushed many oil producers out of business altogether. With this reduced output, this has now helped push prices up as well.

The U.S. Energy Information Administration stated on Wednesday that oil stockpiles fell by around 5.5 million barrels this week, marking the second weekly decline in a row for U.S. oil supplies. Across the ocean, OPEC and its allies have reduced oil exports by around 6 million barrels per day. An agreement signed between all these nations called for cutting an extra 9.7 million barrels per day by the end of June, with Saudi Arabia leading the way.

Oil demand is particularly low due to the coronavirus pandemic, which has all but shut down the global tourism and transportation industry. However, as countries around the world vow to reopen their borders in the coming months, there are hopes that things will be returning to normal soon. Additionally, signs of global recovery are helping push up oil prices as well. Unemployment data in Europe has shown some signs of improvement. Although U.S. jobless claims remain quite high overall, coming in at 2.44 million last week, it’s a figure that’s been steadily falling over the past few weeks.

Overall, oil prices seem to be doing reasonably well for themselves, and if this pandemic ends up sorting itself out for the most part in the next couple of months, prices could possibly end up returning to the $40’s. At the same time, a second outbreak of the coronavirus could end up changing that entirely. It’s anyone’s guess as to what will happen in the near future with the global energy market, but oil companies (especially high-cost producers such as those in Canada) have emerged as the biggest losers during this time.