Just a couple of months ago, oil prices were trading in the negative for the first time in history. However, prices have since staged a pretty impressive recovery, especially since many traders had been scared that prices might go back to negative territory once again. Oil futures ended up rising on Thursday to their highest price seen since March.
One of the main reasons for oil’s recovery was the better-than-expected economic numbers from the U.S. In particular, the country added an extra 4.8 million jobs in the month of June, while the overall unemployment rate fell for the second month in a row to 11.1%. Although that’s still fairly high overall, it’s an improvement from where it was back a couple of months ago. Now that the economy is showing signs of recovery, demand for crude oil is expected to pick up. In turn, oil prices are expected to continue to rise over the coming months.
“Yesterday’s crude stockpile relief news in the U.S. was not a one-off event that traders forgot. A huge drop in inventories, much higher than most of the market expected, is clearly a booster factor,” wrote Louise Dickson, an oil markets analyst at Rystad Energy according to MarketWatch.
The U.S. Energy Information Administration also went on to mention on Wednesday that U.S. crude supplies fell by 7.2 million barrels for the last week of June. That’s the first decrease after a three-week period of consecutive oil inventory increases. In comparison, most analysts had expected that oil inventories would have declined by just 2.7 million barrels instead. Declining domestic inventories are a sign that demand is growing once again. Couple that with the fact that most oil companies have drastically curbed back their production, it’s not surprising that prices are expected to continue to rise.
Prices for West Texas Intermediate ended Thursday at around $39.85, the highest point is seen in quite a while. International benchmark Brent Crude ended a little bit higher, around $42.58 per barrel, which is typical for Brent crude.
Despite recovering oil prices, major oil companies have been reporting major losses over the past couple of months. One of the largest companies in the world, Royal Dutch Shell, announced earlier this week that it expects to write-down as much as $22 billion in oil-related assets during this second quarter. Additionally, the company expects to see major losses as well.
Another oil giant, ExxonMobil, also warned that it expects to report a loss for this upcoming fiscal quarter. Although prices at around $40 per barrel are enough for some companies to start posting a profit once more, it can be a pretty tight margin for some businesses. Many oil producers in higher-cost regions, such as the Canadian oil sands, have gone out of business altogether since its impossible to even break even if prices aren’t higher.
While the economy has shown signs of recovery, there are growing fears about the second wave of major coronavirus breakouts. New U.S. coronavirus cases ended up reaching a new single-day record on Wednesday, rising to just over 52,000. Time will tell whether these fears are justified or if things are going to be settling back to normal anytime soon.
