Third quarter 2020

• DOI: http://doi.org/10.1111/oet.12820
• Date: 01 October 2020
• Published date: 01 October 2020

EDITORIAL

Third quarter 2020

Prices edged up over the first 2 months of the quarter,

although only by about $4/bbl, with far less volatility

than seen in Q2. But growing concerns over the impact

of the pandemic on demand sent prices lower through

September.

Stability returned to the oil markets in July, with

front month September Brent crude trading in a narrow

range of between $42/bbl and $44.50/bbl all month—in

sharp contrast to the extreme volatility seen in previous

months as the Covid-19 pandemic spread—as major

OPEC-plus supply cuts offset the pandemic's impact on

demand. There was also support in early July from

improved demand outlooks as case numbers fell back in

Europe, and from a bigger-than-expected rise in US

employment, after earlier sharp falls. By 2nd July, Brent

had reached a 4-month high of Just over $43/bbl. But,

from the beginning of the first full week of the month,

growing concern over a continued rise in Covid-19 infec-

tion rates, especially in the United States, began to bal-

ance out the improved demand outlooks—which resulted

in rangebound prices for the rest of the month.

Sentiment weakened slightly in the middle of the sec-

ond week as US crude stock numbers rose, and exports

fell, while concern over rising coronavirus cases contin-

ued to fester—leading to falls in US equity markets. On

July 9th, front-month NYMEX WTI fell back below $40/

bbl for the first time in a week, and Brent also fell

slightly, before bouncing back on the Friday due to rising

demand forecasts and growing evidence of tight compli-

ance by OPEC and its' allies to output quotas agreed in

April.

There was little movement for the first 2 days of the

week of July 13th, before a sharp fall in US stocks pro-

vided support midweek, pushing up prices a little. Strong

US product demand growth, especially for diesel, also

helped offset any disappointment in the market from

OPEC-plus decision not to roll over July's 9.7 mn bpd

production cuts into August, but to ease them to 7.7 mn

bpd as planned. On Wednesday 15th July, NYMEX

August WTI settled up at $41.20/bbl, while ICE

September Brent reached $43.79/bbl. Levels then eased

back slightly at the end of the week as fears over rising

Covid-19 cases, and the impact that might have on oil

demand, rose to the fore again.

The following week, sentiment picked up on the back

of promising news of progress on a potential coronavirus

vaccine from AstraZeneca and Oxford University, which

increased confidence that at least one vaccine would be

commercially ready by 2021. However, the impact on

prices was capped by an acceleration in the rise in Covid-

19 cases, especially in the United States. Agreement on a

major EU stimulus package was supportive mid-week,

but then, on 23rd July, US unemployment rose again

unexpectedly, casting doubt over the post-pandemic eco-

nomic recovery and sending crude prices back down

slightly.

The following days saw little movement, with tighter

supply and improving short-term demand offset by grow-

ing concerns that medium term demand was unlikely to

fully rebound as expected. There was some upward pres-

sure on 29th July, due to a weaker dollar and another rise

in US inventories, but at the end of the month the grow-

ing pandemic worries saw prices wobble again, although

Brent held on above $43/bbl.

August began with a modest rise in crude prices, with

support from positive US economic data, particularly in

manufacturing, despite high corona virus case numbers.

Global demand continued to show signs of recovery as

travel and other restrictions were eased in many coun-

tries, although a rising production outlook capped upside

price movement: On August 1st, OPEC-plus, reduced

quotas to 7.7 mn bpd for the rest of the year, down from

about 9.7 mn bpd in July, although this could be higher if

overproducers catch up, as Saudi Arabia and others

demanded. Prices then stabilized, as bearish news of

stalled progress over another round of US economic stim-

ulus was offset by news of falling Iraq crude production.

At the end of the first week of August, sentiment turned

more bearish on rising US-China tensions.

The following week, Brent rose from $44.40/bbl on

the Monday to peak at $45.43/bbl midweek—the highest

prices since March, before falling back to $44.80/bl by

Friday August 14th. Optimism over demand recovery

early in the week began to reverse toward the end of the

week, as demand forecasts from the IEA and others came

in below earlier estimates, based on a more prolonged

Covid-19 impact on driving and flying behavior. The IEA

said global jet fuel (the worst hit product) demand would

DOI: 10.1111/oet.12820

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