Giant pillars holding up oil markets have suffered cracks since the pandemic sent shock waves through the global economy. Demand has collapsed and prices have tumbled, but there are reasons to believe the worst of these tremors have passed. Crude has survived the seismic shock waves and can fuel the recovery.
Dated Brent – the physical benchmark used to price two thirds of the world’s oil – has more than doubled in value since hitting a 21-year low in April. The measure of high-quality North Sea crudes is now trading at around $US34 per barrel, enough to keep the industry functioning. Prices have recovered as nations begin to ease lockdowns and producers reduce supplies to rebalance wobbly markets.
The feared exhaustion of global storage capacity has abated. Freight rates to hire super tankers known as VLCCs, recently used to store oil out at sea, have fallen back to around $US50,000 ($75,000) per day, from a peak of $US200,000 per day.
Motorists are helping to restart demand. According to Apple Maps data based on routing requests, road traffic in Britain has doubled since the peak of the travel restrictions enforced in early April. In the US, the world’s largest oil-consuming nation, the same data shows road journeys beginning to approach pre-pandemic levels as more states open up ahead of the summer driving season. Road congestion in Beijing is back to normal.