Oil prices have spiked significantly within the last weeks with a margin of more than US$10 to a two months high as demand is progressively expanding.
Market optimism is beginning to have considerable impact on marketers’ decision and therefore responding with price rally.
Bonny Light, the Nigerian crude hit US$33.95pb on Monday climbing from US$29.84 it sold on Friday after gaining US$4.11 (13.77%).
Rising from 14.67 in the last week of April to the current price is commendably significant when the current oil benchmark for the reviewed Nigeria budget for 2020 is considered. Nigeria had reviewed downward its oil price benchmark from US$57pb to US$25pb in response to the fallen prices experienced since March.
The WTI Crude June contract expiring on Tuesday was sold at $32.86 with an increase of 11.72% rising sharply from US$29.52pb it traded on Friday. This is the highest price the product have sold since the second week of March.
Brent Crude prices, being ahead of the rest, were also surging on Monday, gaining 7.60% to rise to $34.93pb. Paraskova of Oilprice.com attributed this to producers from OPEC+ and North America that signaled accelerated production cuts and/or curtailments in view of the low oil prices, high inventories, and still low oil demand around the world.
Global oil demand recovery became evident last week as more major economies started to ease lockdowns, such as United States, Italy and some parts of Spain, in addition to China and India that earlier had a surge I domestic fuel demand.
According to Bloomberg report, China’s fuel consumption is already back to the pre-virus levels with traffic jam returning to the highways.
Chinese refineries increased their run rates by 11 percent in April to about 13.1 million bpd while crude oil imports jumped to about 9.84 million bpd in the same April.
Indian fuel consumption is expected to rebound in the month of May as demand showed signs of pick up in the last 10 days of April after the government allowed resumption of economic activity beyond the urban municipal limit, industry data showed.
The demand is expected to further pick up as more areas were opened up on Monday, The Economic Times reported
India’s fuel consumption slumped by close to 70 per cent in April as all petroleum products except LPG saw massive demand erosion following a nationwide lockdown halted economic activity and travel
However, market watchers are expressing reservation on the sustenance of the current rising demand.
Bloomberg reported last week that 117 of the industry’s largest crude carriers are on sail to ports in the Asian country. That’s the biggest number of the vessels since at least the start of 2017, and quite possibly ever. Assuming they have standard-sized cargoes on board, the ships are likely to deliver at least 230 million barrels of cargo.
“Many of the shipments, due to arrive between now and mid-August, are likely to have been purchased last month, when oil prices briefly plunged toward zero because of a huge global overproduction of crude. U.S. barrels traded at negative prices last month amid concern about a lack of space to store supplies while, across the world, physical grades also became steeply discounted”, Bloomberg reported.
The consequence of these is a possibility of Chinese crude build up that may impede on import capacity considering the fact that Aviation fuel demand is still 90% below pre pandemic level.