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Oil rises but red flags abound

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Oilfield Technology,

Oil prices are on the rise today but the market should be cautious as the pandemic is hitting India hard and US crude stocks are forecast to build again.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the day's developments:

"Oil prices are rising today on reiterated optimism for a boost in oil demand in the second part of 2021, but there are obstacles on the road that require caution.

The market expects a major revitalisation for global oil demand from this summer onwards and prices are rising again as we come closer to the beginning of the expected recovery period.

As vaccination campaigns progress and as lockdowns are set to soon be lifted in Europe and other recovering economies, the need for road and jet fuels will increase and the result will be felt.

Road and jet fuel demand have been the most affected segments of oil demand and it is them that will drive the recovery.

OPEC and other institutes and organizations have been repeating their optimism for oil demand in the second half of 2021 and prices have followed suit, as the market is waiting impatiently for the upturn.

The road to oil demand recovery will not be a smooth ride though. Major obstacles are coming ahead and the market will have to carefully negotiate a big demand bump that will result from the worsening situation in India.

To make matters worse – for now – crude storage in the US is filling up rather than being relieved, worrying traders about oil balances.

India’s nightmare Covid-19 situation is going to impact the market for a number of months, of that now we are quite certain.

The Covid-19 infection chaos will not leave oil demand unaffected and we expect the negative global impact to exceed 500 000 bpd for April and reach 1 million bpd in May, making India the most severely hit nation during the pandemic’s second wave.

We don’t believe that oil demand will normalize in India until at least the end of the summer.

As a result of India’s oil demand dip pressure, global balances are expected now to loosen a few months versus what we anticipated previously.

Millions of barrels that would normally head to the oil-hungry nation, will now have to find other customers or be put in storage. And prices will take notice.

For the moment, the market seems to be ignoring India because everyone's head is turned to the developments in demand from the US and China.

In China demand increased amid festivities, while in the US gasoline demand is following a linear recovery trend as more people are vaccinated.

But oil traders will eventually turn their heads and look the other way too, and India is waving."

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