The oil price comes off the boil again

The oil market is “coming back to reality”, Eugen Weinberg of Commerzbank told Joe Wallace in The Wall Street Journal. US oil futures fell below zero in April after lockdowns laid waste to global oil demand. Brent Crude hit an 18-year low that month at a little over $19 a barrel, but then rallied 135% through the end of August to top $45 a barrel. Yet that rally has now come unstuck, with Brent falling back by 12% so far this month to hit a two-month low earlier this week.

American petrol demand has flatlined at around 85% of pre-pandemic levels, dashing hopes of a return to normal, says Julian Lee on Bloomberg. Chinese demand is more robust, but the country accumulated vast stockpiles of fuel when prices plunged earlier in the year.

With Opec, the oil exporters’ cartel, and Russia also slowly easing back on oil production curbs, spare capacity is “rife”. Oil prices are facing a “chill autumn wind”.

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The oil market’s bounceback was always a fragile one, says James O’Rourke of Capital Economics. Global demand appears unlikely to regain its pre-pandemic levels until 2022 and “vast oil stocks” – accumulated not only in China but also in many other countries – will weigh on the market throughout next year.

Oil bulls may have to wait until the tail end of 2021 before they can hope for higher prices, and then only if Opec and Russia manage to keep some production curbs in place.