Oil Holding Near $45 per Barrel, But Maybe Not For Long

Oil prices plunged as the pandemic spread around the globe, with U.S. futures at one point dropping to less than negative $35 per barrel, meaning producers would pay you to take their product. That didn’t last long, and now we’ve stabilized around a positive $45, but can it hold?

The rebound in pricing followed the economic rebound as nations got the pandemic under some form of control. Specifically, China’s buying binge earlier this year as it the country reopened its economy drove oil prices higher, helped by supply cuts by OPEC. But that’s in the past. Now the futures markets show that prices for delivery in the near term are higher than the prices for delivering later, which implies weakness in the months ahead.

Eugene Lindell, senior crude market analyst at JBC Energy, said:

“In April and May, (the Chinese) were basically clearing up the global market oversupply and China is still chewing through the resulting logistical bottlenecks. The world excluding China now needs to cope with rising crude availability … as Saudi and other producers have increased production a bit.”

And then there’s “offshore” storage, which describes the amount of oil sitting in tankers offshore. Today there are more than 90 million barrels of crude and condensate, slightly more than one day’s consumption for the entire planet, sitting in tankers off the coast of China.

While the Chinese have been buying more, the rest of the world is still dealing with the pandemic and trying to figure out the new normal. If business travelers don’t take as many trips, then airlines won’t need as much fuel.  If workers can log in from home, then we will have fewer commuters. If demand doesn’t pick back up, then rising supply coupled with oil already sitting in storage could drive prices even lower.

That might be good news for our pocketbooks, but it won’t help the ailing U.S. energy sector.

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