Oil prices rebound a year after historic plunge below zero
A further rise in oil prices caps a year-long recovery from crude's 'black Monday'. Prices resumed their rally in global markets on Tuesday as traders shrugged off the memory of 2020's "Black Monday", when some oil prices entered negative territory at the start of the pandemic-driven recession.
Brent crude, the global benchmark, rose above $68 a barrel for the first time in more than a year. While West Texas Intermediate, which approached $40 at the depths of the oil crisis exactly a year ago, jumped above $64.
The resurgence in oil prices has led some experts to assess the possibility of a "super cycle" in which oil prices return to above $100 per barrel. The data suggest that these favourable prospects are due in part to an improving outlook as the global economy emerges from the blockages of the pandemic.
This is a remarkable turnaround from 12 months ago, when the benchmark US crude oil price plunged below zero dollars for the first time in history. The market fell as low as -$40.32 on 20 April 2020, as investors were caught between a lack of buyers and an inability to take delivery of barrels due to a lack of available storage space. In effect, they had to pay to get rid of oil.
The International Monetary Fund has recently forecast a sharp increase in economic activity for the rest of the year. Last week, China declared that its economy had grown by 18.3% in the first quarter of the year. This boils down to the fact that the global roll-out of COVID-19 vaccines has led economic experts to forecast a strong recovery in growth in 2021. But oil analysts believe that the actions of the Organisation of Petroleum Exporting Countries (OPEC+), an alliance of producers led by Saudi Arabia and Russia, have been the main factor in helping to reduce the massive oil glut that threatened to flood the global market last spring.
Overconfidence could be dangerous. In a note to clients on Tuesday, Bjarne Schieldrop, chief commodity markets analyst at SEB, warned against complacency about oil prices. "The main issue is that this situation can happen again and that Saudi Arabia has the power to do so by flooding the market," he said. "It may not be as extreme as it happened because there were various circumstances involved," he added, citing the price war between Saudi Arabia and Russia as an example.
The dispute between Moscow and Riyadh at the OPEC+ ministerial summit in Vienna on 6 March 2020 exacerbated the effects of the pandemic. The brief but intense brawl between two heavyweights in the cartel of 13 oil-producing countries and their 10 affiliates threatened global crude storage capacity levels with cheap oil.
Since last April, OPEC+ has withdrawn more than 3 billion barrels of oil from the global market through a combination of heavy domestic tightening and voluntary cuts by Saudi Arabia, the world's largest exporter.
Prince Abdul Aziz bin Salman, the Saudi energy minister and OPEC+ co-chair, has repeatedly urged caution from the 23-member organisation in the face of resurgent cases of COVID-19 in some parts of the world. Europe and India are the latest areas of concern, he added. "The reality remains that the global picture is far from uniform, and the recovery is far from complete," he told the latest OPEC+ meeting.
Oil price bulls are encouraged by rising demand from China, the world's biggest oil consumer. Figures from the country's customs regulator, released on Tuesday, showed that crude imports from Saudi Arabia (its biggest supplier) had risen by almost 9 per cent in March, with strong domestic demand bolstered by the release of supplies following port congestion.
Some analysts continue to believe that Brent crude could reach $75 this year, and estimate that $100 a barrel next year is a possibility. But no one seems to believe that last spring's volatile market conditions, and negative oil prices, will be repeated.