The oil price rallies – but a full recovery is a long way off

Brent crude continued its rally early this week. But countries that depend on oil are still in a difficult spot.

US futures plunged below zero in April due to Covid-19’s destruction of demand and a US-Saudi price war. Yet oil then staged an 88% rally during May. 

Slowly reopening economies and the recent producers’ deal to cut output by ten million barrels per day in May and June – a deal that this week looked set to be extended – have stabilised the market. Brent crude continued its rally early this week, eclipsing $40 a barrel.

The recovery still leaves the industry and the countries that depend on it in a difficult spot, says Ed Clowes in The Daily Telegraph. Many US shale drillers need prices above $50 to survive. Distressed debt in North American energy tops $190bn. Saudi Arabia has been forced to bring in tough austerity measures to balance the books, slashing benefits and effectively tripling VAT. Lower prices saw Russian GDP contract by 28% in April. Closer to home, some analysts warn that the shakeout could “accelerate the death of the North Sea”, where fields are becoming uneconomical.

The pandemic has also eclipsed the oil market’s usual geopolitical worries, says Samuel Burman of Capital Economics. So great has the demand destruction been that even if Iran blocked the crucial Strait of Hormuz shipping route there would be little impact on prices; many Middle Eastern states are cutting back exports anyway. 

The most bullish analysts think the supply glut could end in weeks, writes Ellen Wald for Barron’s. Yet economic reopening is just the first stage on the path to more normal demand for the word’s favourite commodity. Fear of the virus remains widespread, meaning many are still avoiding travel and leisure. The market must also contend with the scarring effects of a deep recession. The journey back to pre-crisis levels of oil demand will be a long one.

Recommended

What tightening Covid rules mean for your money
Investment strategy

What tightening Covid rules mean for your money

The government has introduced new rules to slow the spread of Covid. John Stepek looks at what they could mean for the markets, interest rates, and yo…
9 Dec 2021
NFTs: what are they and why are they so popular?
Bitcoin & crypto

NFTs: what are they and why are they so popular?

The NFT market has been on a rollercoaster ride in 2021 starting with the $69m sale of a digital artwork backed by a cryptographic token known as an “…
8 Dec 2021
We’re at another turning point in the 100-year cycle of money – here’s what to do
Currencies

We’re at another turning point in the 100-year cycle of money – here’s what to do

Money has always moved in 100-year cycles. And we’re at another turning point now, says Dominic Frisby – money has gone from gold to government-backed…
8 Dec 2021
I wish I knew what a bond was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a bond was, but I’m too embarrassed to ask

When thinking of investing many people automatically think of the stockmarket. But there is another market – the bond market. So what exactly is a bon…
7 Dec 2021

Most Popular

Three safe bets on the growing online gambling sector
Share tips

Three safe bets on the growing online gambling sector

Professional investor Aaron Fischer, creator of the Fischer Sports Betting and iGaming ETF, picks three of his favourite online gambling stocks.
29 Nov 2021
Making sense of the new minimum pension age rules
Pensions

Making sense of the new minimum pension age rules

The rules surrounding the minimum age at which you can start tapping into your retirement savings have been tweaked, but are still confusing. David Pr…
23 Nov 2021
Bubbles grow in global property markets as house prices continue to rise
Property

Bubbles grow in global property markets as house prices continue to rise

House prices grew by 6% in the year to mid-2021 in 25 global cities, with the German property market in particular showing signs of overheating.
3 Dec 2021