Oil's steepest downturn in decades was followed by its best month on record -- an 88.8% jump for West Texas Intermediate (WIT) in May -- to bring its price to a disappointing but nonetheless morale boosting $35 a barrel.
To put this price "improvement" in perspective, the average price of WTI crude oil was $57 per barrel in 2019 and $64 in 2018. At $35, WTI (the U.S. benchmark) is still 46% below its recent January high of $65.65 per barrel. The price surge in May is, nonetheless, impressive considering the previous highest jump on record for WTI occurred in September 1990 when prices rocketed 44.6%.
Oil prices rose by a further 5% on Friday, the last trading day of May, setting the seal on WTI's best month in its history. The reasons for the historic boost in May: somewhat higher demand as countries reopen their economies shuttered by the COVID-19 pandemic, and record supply cuts agreed to between OPEC+ and Russia in April.
The oil market is finally coming to a balance with supply expected to match demand, according to Bjørnar Tonhaugen, head of oil markets at Rystad Energy, an independent energy research and business intelligence company based in Norway.
On the other hand, industry experts are quick to point out the price spike comes in the wake of the steepest price downturn in history.
"It certainly doesn't feel like it was oil's best month ever," wryly noted Regina Mayor, KPMG's global head of energy.
But she did day a low $30s for WTI is clearly better than where the benchmark crude was at the end of April. The new price, however, won't be enough to bring the bulk of production back online.
Demand for oil cratered in April, sending prices plunging. WTI plummeted below zero and into negative territory for the first time in history. This historic horror was due partly to the contract's imminent expiration. The plunge also confirmed no one wanted to take the physical delivery of crude with demand so depressed.
April's gloom has, however, given way to a sunnier May. The U.S. Energy Information Administration (EIA) Thursday released data showing for the week ending May 22, gasoline demand increased to 7.3 million barrels per day from the previous week. Demand for WTI has gone up as can be seen by a 3.4 million barrel drop in storage in Cushing, Oklahoma, WTI's main delivery point.
Refinery utilization rose to 71% from 69%. Overall inventory moved upwards by 7.9 million barrels. This improvement compares quite favorably with the 1.3 million barrel draw analysts predicted.
