Historic Oil Price Crash Marks One Year Anniversary at $63 a Barrel

By Andres Guerra Luz and Alex Longley (Bloomberg) —

Oil fluctuated above $63 a barrel, exactly one year after U.S. benchmark crude futures plunged below zero, with traders extending its rally on bets for demand to return.

West Texas Intermediate chopped around Monday’s closing price after gaining as much as 1.4% earlier in the session. Libyan production fell below 1 million barrels a day amid a budget dispute. Meanwhile, the forward curve suggests growing confidence — particularly as U.S. demand recovers — with some market gauges surging in recent days. Several so-called timespreads are in their strongest backwardation in a month, indicating tight supply.

“There’s plenty of signs of a strong recovery, especially in the U.S.,” said John Kilduff, a partner at Again Capital LLC. But the uneven recovery worldwide is “keeping a lid on prices.”

There continues to be points of optimism for an upcoming surge in global oil consumption. Driving is soaring in the U.K. as more than 60% of its population over 18 has received a first vaccine dose. Vitol Group, the world’s biggest independent oil trader, expects demand to come roaring back, echoing optimistic views from OPEC and the International Energy Agency. Still, the virus is rampant in countries such as India, where annual oil imports fell for the first fiscal year since the late 1990s as refiners are cutting run-rates amid lower demand.

“With U.S. energy demand rising at a fast clip, expectations for global demand to post a roaring recovery from the pandemic’s exit are firming,” TD Securities commodity strategists led by Bart Melek said in a note. “Prices could be set for a temporary boost, but a massive amount of OPEC+ spare capacity argues against a sustainable rally in prices north of $70 a barrel.”

A year ago today, the global oil market faced an unprecedented crisis, with WTI closing at -$37.63 a barrel. Prices went negative after lockdowns savaged demand and key producers Saudi Arabia and Russia flooded the market in a price war. A restoration of OPEC+ unity marked by deep supply cuts, as well as vaccine distribution around the world, have helped prices to climb back.

“The market’s recovery through the past year, though still clouded by uncertainty, makes a repeat of the April 2020 price crash highly unlikely,” said Vandana Hari, founder of Vanda Insights in Singapore. “Some of the circumstances were unique to last year and the initial weeks of the pandemic, such as the confluence of the unanticipated shock of global lockdowns and demand destruction and OPEC+ opening the spigots.”

© 2021 Bloomberg L.P.

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