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Brent and WTI oil prices rise above US$30 a barrel

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Oilfield Technology,

Oil prices rose this morning as governments lift lockdown measures and demand increases around the world.

Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez Masiu, has made the following comments:

"Both Brent and WTI oil prices rose above US$30 a barrel for the first time in two months as the oil balance seems now closer. Producers are significantly throttling back output and, with demand increasing, the market is on a slow path towards recovery.

OPEC became the spearhead of balancing efforts this month as the supply cut agreement came into effect. Three members of OPEC, Saudi Arabia, Kuwait, and the UAE have went beyond that, by announcing that they will enact deeper-than-agreed production cuts starting from June.

Despite the unquestionable leadership of OPEC members that are helping to rebalance a beaten-up market by the lockdown measures, shut-ins outside of OPEC have greatly contributed to the decline in supply.

Faced with meagre demand and unattractive low prices, production curtailments came faster and deeper than initially anticipated. US operators have already announced crude production shut-ins of at least 1.2 million bpd in May-June, and frac activity in the US has dropped about 62% on a standard-month basis in April, and won’t recover before 3Q20.

Optimism on the demand side of the oil equation has also helped prices climb further, with gasoline demand coming back as governments ease confinement measures. This will help. But the physical market is not completely “out of the woods.” We still see a 13.7 million bpd implied liquids (crude, condensate, NGLs, others) stock builds in May-20. Although significantly down from the all-time-high 26.7 million bpd implied builds in Apr-20, the market will need to absorb crude into storage both onshore and at sea. In addition, there is significant downside risk related to two events, the resurgence in Covid-19 outbreaks, and deteriorating compliance to OPEC+ cuts as demand comes back."

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