Is rebound in oil prices sustainable?

Some hopes were created on Tuesday after U.S. President Donald Trump and Russian President Vladimir Putin agreed to talks to stabilize energy markets, with benchmarks climbing off 18-year lows hit as the coronavirus outbreak cut fuel demand worldwide.

Trump and Putin agreed during a phone call to have their top energy officials discuss stabilizing oil markets, the Kremlin said on Monday. On this flimsiest pretext, oil prices are showing signs of clawing back from a near 18-year low.

Expectations were partly marred when crude oil benchmarks opened April mixed on Wednesday, following their biggest-ever quarterly and monthly losses, overshadowed by fears of global oversupply as data showed a bigger-than-expected rise in inventories in the United States. Brent futures were traded at US$26.14/barrel by 0032 GMT, while WTI futures were traded at US$20.75.

Opening session of today left oil prices marooned near their lowest levels since 2002 amid the global coronavirus pandemic that has brought worldwide economic slowdown and slashed oil demand. Crude futures ended the quarter down nearly 70% after record losses in March.

Added to the trauma was rise in US crude inventories, up by 10.5 million barrels last week, far exceeding forecasts for a 4 million barrel build-up, indicated by data from industry group the American Petroleum Institute.

Oil slumped to a 17-year low as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by plummeting demand and piling up crude inventories.

Physical oil markets are struggling to store fuel, hit by a double whammy of lockouts and shrinking demand. Western media is portraying it a war for market share between Saudi Arabia and Russia.

The world normally uses 100 million barrels of oil day, but forecasters predict as much as a quarter of that has disappeared in just a few weeks. The plunge in consumption is unprecedented. The great crash of 1929, the twin oil shocks of the 1970s and the global financial crisis don’t come close.

Global oil demand is in freefall and consumption may decline by as much as 20 million barrels a day, according to the International Energy Administration.

The bearish mood in the market hasn’t improved by a rift within the Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia and other members of OPEC were unable to come to an agreement on Tuesday to meet in April to discuss sliding prices.

It is very unlikely that OPEC, with or without Russia or the United States, will agree to production cut to contain global crude oil glut, mainly due to record production by the United States.