EC HH Oil And Gas Markets: Why The Uncertainty May Linger

Crude oil and natural gas prices fell significantly over the past four months. As widely reported, the fall was driven by a certain supply and demand interface arising principally, from the current Coronavirus (Covid-19) pandemic, but compounded by a keen duel for market share by major oil producers.

Oil prices have rebounded somewhat, to US$40.50 per barrel (Brent) and US$38.00 per barrel (WTI) as at 16:00 hrs on 26 June 2020; about 60% (Brent) and 63% (WTI) of January's average values. For the WTI, it was a substantial recovery from the dismal value of -US$36.98 per barrel recorded on 20 April, just over two months ago.

However, even with that rebound, the markets’ trajectories may remain uncertain.

Covid-19 And The Global Economy

Economies around the world have sustained brutal impacts from the current Covid-19 pandemic. The U.S. National Bureau of Economic Research which dates recessions has announced that the country officially entered recession in February of this year, ending the 128-month expansion that began in June 2009. The U.K. suffered a 20.4 per cent month-on-month GDP decline in April, according to the Office for National Statistics, ONS.

The Organization for Economic Cooperation and Development (OECD), in its recent Economic Outlook stated that the economic impact of the pandemic would be protracted and harsh. It projected a 6.0 percent decline in the global economic output for 2020 and a growth of 5.2 percent in 2021. However, in a second-wave pandemic scenario, it projected a 7.6 per cent decline for 2020 and a growth of only 2.8 per cent in 2021.

Countries around the world are gradually emerging, albeit at different rates, from the lockdown imposed as one of the curtailment measures against Covid-19. As business activities have increased, oil prices have also ticked up, driven in the main, by increased demand for petroleum products, especially gasoline.

That relaxation of lockdown however, has come with spikes in cases of Covid-19 infection. In the U.S., that spike was 25% for the week ended June 21 compared to the previous seven days, Reuters reports. At least 25 states including Florida, Arizona, Texas and California recently recorded significant increases in the number of cases; for some of them, the spikes included the highest single-day values since the pandemic.

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