Oil prices have continued to rally due to increasing demand and markets are forecasting for continued demand growth. These price increases have been driven almost entirely by progress by the U.S., Europe, and Britain in reopening their economies as the pandemic comes under control with mass vaccinations. West Texas Intermediate (WTI) crude prices have recently stabilized in the mid-$60/bbl range. There are some possible threats, however, that could slow, stop, or even reverse this trend.
India has had to reimpose lockdown measures to combat widespread COVID cases over the past few weeks resulting in one of the worlds largest emerging economies curbing activities that drive oil demand. Additionally, as of May 15th, Taiwan and Singapore have had to reinstate their own lockdown measures as they have also seen a spike in cases. As people remain home, all of this combines to reduce demand in oil derived products, particularly gasoline and diesel. We are well aware of what living under lockdowns means and just how little resources are used during those restrictions.
The newest possible concern threatening oil price recovery is the reinstatement of the Iran nuclear deal. If the deal is reinstated, the sanctions currently imposed on their on their economy would be lifted and would likely result in menacing increases of oil exports from Iran further adding to the global supply. As of the day of writing this, oil prices dropped 2% on news that the Iran nuclear deal could be reinstated. If this were to actually come to fruition the sustained impact on oil prices would likely be much more severe.
I will continue to emphasize the positives: oil prices are currently holding in the mid-$60/bbl range and deepwater activity in the U.S. GOM remains steady.