Crude Oil Is Back

For the first time in history, in April 2020, the cost of US oil turned negative.

The cost of a barrel of West Texas Intermediate (WTI) dropped to minus $37.63 per barrel, leading Stewart Glickman, an energy equity analyst at CFRA Research, to state, “This is off-the-charts wacky. The demand shock was so massive that it's overwhelmed anything that people could have expected."

Fortunately, the oil market now seems to be bouncing back. In February, WTI reached almost $58 per barrel for the first time since April of last year, while Brent crude oil prices had risen by 91% to reach $67 per barrel in March, compared to $35 the previous year, as restrictions eased, travel increased, and supply became more in line with demand. It has also helped that countries worldwide have gotten a better grip of the virus by becoming more adept at tracking and restricting its spread, along with the more effective and faster vaccine distribution. 

The decision in early January by the Organization of the Petroleum Exporting Countries Plus (OPEC+) to restrict output, along with Saudi Arabia's commitment to cut an additional 1 million barrels of crude production per day, gave the lift the WTI needed to reach $50 as well. WTI had not seen such a price range since March 2020. In addition, attacks on Saudi Arabia’s oil facilities carried out by Iranian-backed Houthi rebels drove up oil prices, leading Brent to trade up to $71.38 per barrel at one point.

Typically, a price increase is a concern for oil importers, but in this case, it is also a signal of rising economic sentiment. Moreover, possible increased activity during the summer and the reopening of the US economy are making many remain hopeful for stronger demand. According to Alexander Novak, the Deputy Prime Minister of Russia, while market uncertainty still exists, “in 2022, we will get back to that level [of demand] at which we were before the crisis.”

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