Is Oil Market the Target of Interaction?
During those days that the Coronavirus pandemic had spread wave of fear and concerns worldwide, there was such a recession dominating the oil market that surprised the world. This recession was so that the U.S. was ready to pay $35 per barrel to those who were ready to buy its oil in order to save extractions from its oil wells. Now after two months of fight with main rival of economy, the Coronavirus, while some group supporting the fight with the virus and some group defending reopening of economy through observing social distancing, the oil price is getting upward trend.
IRAN NEWS POLITICAL DESK
Oil price despite uncertainties from the virus is growing but it has also experienced swings resulted from the condition in the market. Early this week, the crude benchmark Brent , with seven percent growth, inched towards $43 per barrel and the price of the U.S. West Texas intermediate crude reached $40 per barrel. This change in the nature of the market’s approach has important reasons that some reason can be like strengthening of the demand which had suffered serious damage after the outbreak of COVID-19.
Most experts believe that devastating effects of COVID-19 on the U.S. economy are going downward. The murder of George Floyd and following protests have still overshadowed the U.S. community, and employment market in the U.S. is changing. The U.S. unemployment rate while was 14.7 percent in April improved in May and reached 13.3 percent. This is while the number of total unemployed population in the U.S. is estimated at 40m people. On the other hand, statistics show that demand for oil, which had faced heavy decline this year and especially it was 21m barrels lower in April comparing to the preceding year, is gradually improving. Consumption of oil products is on the rise. The demand for gasoline in some countries like China, the U.S. and Europe is increasing. The fuel jet price is soaring with slower pace because of restrictions imposed on passenger plane flights in countries. These data are reported while measurement of greenhouse gases shows that the amount of carbon dioxide emission in Earth’s atmosphere has increased comparing to the preceding year. The CO2 levels reached a record high in May which were an average of just over 417 parts per million, or ppm, which grew by 2.5 ppm.
This rise in CO2 levels is very significant and considerable when most of industrial activities and transportations in the world had almost being halted due to the Coronavirus crisis. Experts in the environmental issues believe that CO2 has a capability which can keep its emission in the atmosphere for hundreds of years; so by 17 percent drop in consumption of fossil fuels in April, one cannot expect reduction in the greenhouse gases.
Regarding the improvement in data related to oil sales and comparative balance in prices, condition of Iran’s oil production and exports are still unknown. Some data from think-tanks and secretariats of energy institutes estimate that Iran has continued exporting between 80,000 to 800,000 barrels of oil per day. Before the U.S. pullout from the JCPOA, Iran used to export 2.5 bpd of crude oil. Customers of Iran’s oil are currently China, India, Turkey and some unknown purchasers in the spot market.
On sales to China, the latest report from China’s General Administration of Customs shows that the country imported 350,000 bpd of Iran’s oil in March. What one can definitely say today and in the economic chaos in the world is that the connection of global markets to each other will have overlapping effect, either positive or negative, in the markets, and in the upcoming months it will be totally unpredictable.Can the U.S. be able to improve the economy and push the production towards a comparative stability through its suppressing method during the protests on the racism? Will effects of lockdown in important sectors of Europe’s economy can be rebuilt? The International Monetary Fund (IMF) in response to these questions predicts a negative economic growth for the world between 2.5 to 7 percent and this is the indicator for a gloomy outlook, even if today the oil market moves towards the temporary target of interaction.
By: Hamid Reza Naghashian