Hopes for global growth lift oil prices
Crude oil futures spent the first weeks of June in recovery mode, regaining most of the value they sustained during the steady bearish run in May
By 23 June, the front-month Brent contract on London's Ice was trading above $77/b. In New York, the light sweet crude oil contract for August delivery was trading above $76.50/b as Petroleum Economist went to press.
The sharp falls in May, which took prices beneath $70/b, their lowest point since September 2009, came on the back of grim economic news in Europe, where the Greek debt crisis prompted fears of a wider financial meltdown in the EU.
Those worries began to abate in June, triggering an oil-market rally. Strong US buying of middle distillates also suggests demand recovery, albeit against a weak base point in the country. That has yet to find its way fully into the futures markets, says the Centre for Global Energy Studies (CGES). But a rise in US demand could yet put upwards pressure on prices, with China facing more competition for crude.
Indeed, the summer story for oil markets could be the return of US demand. Refinery inputs have returned to levels last seen in 2008, a response to the dip in prices in May, says CGES, but also a reflection of greater economic optimism.
Nonetheless, in the physical market supplies are ample. Non-Opec supplies are likely to grow by 0.6m b/d this year. With stocks still burgeoning in the rich West, this could put a cap on prices for the rest of the year. A slow-down in drilling in the US, as a result of the Macondo oil spill, could have an effect; but Opec's spare capacity still leaves plenty of room for quick supply growth. A weaker dollar in the wake of China's decision to allow a moderate appreciation of the renminbi should support prices. But persistent weakness in the euro will offset this.
The market's sentiment in coming months will depend less on the fundamentals and more on which force holds more sway over crude: economic recovery in the US, or stagnation in Europe.