Crude Oil

Prices: The front-month futures price for Brent crude oil settled at $42.03 per barrel (b) on July 1, 2020, an increase of $3.71/b from June 1, 2020. The front-month futures price for West Texas Intermediate (WTI) crude oil for delivery at Cushing, Oklahoma, increased by $4.38/b during the same period, settling at $39.82/b on July 1 (Figure 1).

Brent front-month futures prices traded in a $6.92/b range in June, the narrowest since November 2019. The development of a relatively narrow trading range and lower price volatility likely reflects an increasingly balanced oil market as demand recovers and global oil supply is managed among members of the Organization of the Petroleum Exporting Countries and partners (OPEC+). The OPEC+ production cuts have contributed to significant reductions in estimated global liquid fuels production, which the U.S. Energy Information Administration (EIA) estimates was 87.6 million barrels per day (b/d) in June 2020, down by more than 12 million b/d (12%) since April 2020, the month before the agreed production cuts were implemented. Although to a lesser extent than OPEC+ cuts, declining production in U.S. tight oil basins as result of falling oil prices has also contributed to market balance.

EIA estimates that global oil demand increased 5.3 million b/d (6%) from May 2020 to June, reaching 89.5 million b/d. Countries that are part of the Organization for Economic Cooperation and Development (OECD) have begun easing COVID-19 containment measures, which has led to an increase in these countries’ petroleum demand. However, some countries such as China, the United States, and South Korea have reimposed some lockdown measures to control localized COVID-19 outbreaks. These events present considerable uncertainty to the oil demand outlook because the reimposition of lockdown measures would affect oil demand related to personal travel and the movement of goods.

The combination of production management from OPEC+ countries and economic recovery is expected to contribute to large oil inventory withdrawals for the remainder of 2020—averaging 3.3 million b/d for the second half of 2020—which EIA forecasts will contribute to slight upward price pressure by the end of 2020.