COVID-19 Puts Hold On Industry, But Oil Prices Have The Ability To Bounce Back
The oil industry is currently enduring some of the hardest price fluctuations, and it is all due to COVID-19. This mass pandemic has taken a toll on our current economy by putting a sudden stop on everyday living, however, there is still an opportunity and demand coming that could help oil prices bounce back.
As businesses and shops start opening back up, the industry will see a demand increase due to public transport being used more regularly. As cities open back up from being on lockdown, and restrictions being lifted, people will be allowed to use their vehicles to travel to work or restaurants. There are still restrictions being out in place for flights and international travel, but as the pandemic clears up, the price fluctuations will balance themselves out. As for quarantine restrictions being lifted, and each state having their own stay-at-home orders, the traditional summer driving season is approaching which will help demand rebound.
Although quarantine restrictions being lifted, and returning to regular life sounds pleasant, this needs to be a slow progression. Assuming there is no second wave of COVID-19, a slow and steady progression is key to price increase because too much increase can lead to supply and demand imbalance.
The current U.S. oil right found is falling, and this is an indicator that future oil production in the U.S. may be lower than it otherwise would have been. The less drilling there is due to decrease in demand, the less supply for the people. In the long term, these reserves get used up, but in the short term it will cause an imbalance in supply.
As UBS analyst Giovanni Staunovo says, “The marked price increase in recent weeks is bringing back crude production that was shut-in, triggering the unloading of oil stored on tankers and weighing on refinery margins.”
As the pandemic clears up, and the people are able to return to everyday life of traveling to work or travel, the oil prices will be able to increase and the industry has the ability to regulate itself if done correctly.