Second quarter 2020

• Date: 01 July 2020
• DOI: http://doi.org/10.1111/oet.12806
• Published date: 01 July 2020

EDITORIAL

Second quarter 2020

The second quarter of 2020 was a memorable one for oil

markets, with the biggest supply cut ever seen from a

wide coalition of producers agreed in mid-April. Despite

this, prompt prices fell to record lows shortly afterwards,

amid a huge drop in demand due to the impact of Covid-

19 and tussles between Saudi and Russia for market

share, which had created a surge in supply. However,

there were soon signs of a demand recovery, and as the

supply cuts began to take effect, May and June saw mar-

kets stabilize and slowly recover.

April began with Brent at just $24.74/bbl on 1 April,

before rising steadily over the next few days. The upward

pressure was largely due to anticipated output cuts by the

OPEC-plus group, in cooperation with a still wider group

of producers, although the extent of the impact from

Covid-19 on global demand continued to grow. Com-

ments on supply restraint from President Trump saw

strong gains on 2 April, and the following day Brent set-

tled up nearly 14% and WTI climbed 12%, as Russia indi-

cated it would be involved with the cuts and that a

record-breaking 10 mn bpd OPEC-plus reduction was on

the cards.

The following Monday (6th), prices eased back as the

United States made clear it would not be part of any top-

down deal to cut output, and OPEC-plus postponed an

emergency meeting until 9 April. Brent held fairly steady

for the next few days, trading in the low $30s/bbl, with

support coming from an increasingly likely OPEC-plus

supply deal and evidence of declining output in the

United States and Canada in response to the lower prices.

News that an upcoming G20 meeting would discuss pos-

sible output cuts among its members, in an effort to help

stabilize the market, also helped balance the growing

impact of Covid-19 on oil demand around the world—

which was becoming increasingly apparent as refinery

run cuts mounted and storage filled up. In the United

States, crude stocks saw their sharpest ever rise, jumping

by 15.18 mn bls in the week to 9 April.

Wrangling among OPEC-plus over baselines saw the

emergency OPEC-plus meeting pushed further back until

12 April, and negotiations continued over the Easter

weekend. On the Saturday, the G20 said it would work

together to stabilize oil prices but did not make any spe-

cific commitments on production restraint. Then on

Monday 13th, OPEC-plus cuts of 9.7 mn bpd were

confirmed for May and June, with Russia and Saudi both

pledging 2.5 mn bpd. There were also commitments from

countries outside OPEC-plus, including Norway and Bra-

zil. Initially prices showed little movement, but with the

virus' impact on demand by now being put at as much as

20 mn bpd for April, many judged the cut to be insuffi-

cient and over the remainder of the week prices slipped a

few dollars (to just over $28/bbl for Brent).

The following Monday 20th saw the biggest ever

slump in prices on a major crude futures contract, with

front month (May) WTI tumbling by 300% to well below

zero for the first time ever on its last day of trading, as

storage near the inland benchmark reached tank-top—

leaving producers paying to have the oil taken off their

hands. June WTI, however, was less affected, but fell

toward $10/bbl. Brent, which has better access to mar-

kets, saw less downside, but still fell sharply to around

$25/bl on the 20th, and below $20/bbl the day after as

the market priced in evidence of an increasingly large

slump in demand. Then on 23 April, WTI rebounded

with a 25% increase on the back of comments from Presi-

dent Trump that drew attention to tensions in the

Mideast Gulf. Brent also recovered slightly, but dipped

back below $20/bbl on the 27th, and remained in the low

$20s/bbl until the end of the month.

After April's volatility and record lows, May saw

something of a recovery. WTI was particularly strong,

gaining ground early in the month as more US producers

announced output cuts, easing the logistical issues that

had sent the inland WTI contract into negative territory

in April. In the first week of the month, weak economic

data weighed on demand outlooks, with Brent dipping

early on, before rallying on the 5th to settle above $30/

bbl, alongside strong gains in WTI on signs of a recovery

in gasoline demand in the United States and mounting

output cuts. The rally was underpinned by firmer product

prices, signaling a pick-up in product demand leading to

some recovery in refinery crude demand and throughput.

Prices then eased back over the following 2 days on

continued uncertainty over the extent of the Covid-19

impact on demand, before firming again on Friday,

8 May. There had been some strength early Thursday

after Saudi Aramco raised its June official selling prices,

signaling an easing in its push for market share. But the

price surge prompted a wave of selling pressure as traders

DOI: 10.1111/oet.12806

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