By Julian Lee
But that’s not the only source of rising crude supply. North American production is also starting to recover from the depths of the Covid-19 pandemic. Last week’s data from the Energy Information Administration showed the first week-on-week increase in U.S. crude production since March (after correcting for the impact of Tropical Storm Cristobal, which tore through the Gulf of Mexico in June and briefly took out more then half a million barrels a day of production).
Shale fracking crews have been getting back to work too, bringing new wells into production while reactivating bores that were idled during the pandemic. The number of wells fracked in July is expected to show its first monthly gain this year, according to industry consultants Rystad Energy.
Canadian oil sands companies are also slowly ramping up output as local refinery demand recovers, although they lag far behind their southern neighbors.
But it’s not just rising supply that will put pressure on crude prices. The hoped-for recovery in oil demand is running into trouble as well.
After a record purchasing spree in April, when crude prices were at rock bottom, China’s oil buying has eased off. The amount of oil held in storage tanks in Shandong province, home to the country’s independent refiners, has risen by 28% since mid-May and is close to hitting a five-month high. And there is still a huge backlog of vessels waiting off the coast to discharge their cargoes. Some have been there for two months.
Meanwhile, processing rates at China’s independent refineries started to ease from record levels in mid-June. And massive floods across the country may reduce its demand for gasoline and oil by as much as 5%, according to consultants Facts Global Energy, although the disruption should be short-lived.
In the U.S., the crucial summer driving season is shaping up to be a miserable one as far as fuel consumption is concerned. The recovery in gasoline demand stalled shortly after the Memorial Day holiday. Now vacation states, like Florida and California, are seeing a surge in Covid-19 cases, with record numbers of daily infections and rising death tolls. That’s limiting travel and hitting demand for both gasoline and jet fuel.
Data from TomTom Traffic Index show that street congestion in cities like Miami, Los Angeles and Houston is still less than 40% of pre-pandemic levels — good news for drivers, bad news for gas stations. Only in northern cities, like New York and Chicago, are traffic levels picking up again.
In European cities, congestion has plateaued, or even fallen again after climbing when lockdowns were eased. Some of that may reflect people leaving the cities to take holidays, as congestion has remained higher in coastal cities like Nice in the south of France.
In Asia, which is generally seen as recovering much more strongly than other parts of the world, the rise in traffic congestion is patchy, to say the least. Second-tier cities, like Shenzhen in the chart below, are seeing busy streets. But in Beijing, Singapore, Mumbai and Manila, traffic delays are still only around 40% of pre-pandemic levels, suggesting there are far fewer vehicles on the roads.
All of these figures paint a picture of crude being squeezed between rising supply and a stagnating demand recovery. That’s going to make the oil bulls uncomfortable, since the next major move in prices looks more likely to be down than up.