Risks to the outlook include a more prolonged pandemic, a breakdown of the OPEC+ agreement, and the response of U.S. shale.
According to World Bank, the recovery in prices has been largely due to continued production restraint by OPEC+. While the group has increased production since the start of 2021, this has been more than offset by Saudi Arabia voluntarily cutting an extra 1 million barrels per day from February 2021.
Crude oil consumption continues to slowly increase after plunging 9% in 2020. Gasoline and diesel have mostly returned to pre-pandemic levels, but jet fuel consumption remains considerably lower as air travel has been slower to recover.
While a further increase in the rig count will be needed before production starts to rise, the U.S. shale industry has repeatedly proved more innovative and resilient to price collapses than expected.
Meanwhile Oil futures ended lower Thursday, with U.S. prices down a second session, as investors weighed disappointing data on U.S. gasoline usage and kept an eye on the impact of surging COVID-19 infections in India on oil demand.
“The situation in India is still providing a major drag for oil prices,” said Edward Moya, senior market analyst at Oanda, in a market update.
In India, the world’s third-largest oil importer, the number of new confirmed cases on Thursday exceeded 400,000 for the second time since the surge began last month.
The 412,262 cases pushed India’s tally to more than 21 million. The Health Ministry also reported 3,980 deaths in the last 24 hours, bringing the country’s total to 230,168. Experts believe the number of cases and deaths in India have both been undercounted.
“With the supply side remaining supportive of higher prices, oil just needs to consolidate for a month for India and Japan to get a better handle on COVID,” said Oanda. U.S. benchmark oil prices could rally 10% to 15% “once India’s COVID crisis improves.”
“The rest of the world is growing nervous that a prolonged crisis in India could trigger new variants and keep this global pandemic lasting much longer,” said Moya, but support from the European Union and U.S. “will intensify as India is roughly 18% of the world’s population.”
West Texas Intermediate crude for June delivery CL00, 0.14% CLM21, 0.