-Expect the unexpected once oil recovers, operators say.
-Hiring in the United States is so last year.
Implied demand in the form of gradual economic reopening coupled with market-driven production closures led to weekly gains in the price of oil. From Australia to France, governments are unveiling step-by-step guidelines for economic reopening. In the US, Michigan’s governor announced plans for the resumption of manufacturing activity in the state. Meanwhile, total production declines across the globe could amount to tens of millions of barrels taken off the market per day. Combined, and the market is balancing out on its own, though the sickness will continue.
The price for Brent crude oil was up 0.8% as of 8 a.m. ET to trade at $29.71 per barrel. For the week, the global benchmark for the price of oil is on pace for a gain of at least 18% amid evaporating supply and a subtle increase in demand. Crude oil prices surged after the US jobs report came in better than expected, though better than expected is still close to one in five Americans out of work.
The Australian government on Friday announced a three-step plan to relax coronavirus restrictions, largely at the discretion of state and territorial authorities. Australia has largely been spared from the worst of the crisis, however, with 97 deaths attributed to COVID-19. There are only around 1,000 active cases in the country, compared with some 45,000 in the state of Michigan. There, state Gov. Gretchen Whitmer on Thursday announced that manufacturing, which accounts for about 20% of the state’s economic activity, can reopen next week. For the broader European economy, meanwhile, ECB President Christine Lagarde said policymakers need to start thinking about what happens next.
“The focus will need to shift from providing backstop support to enabling the recovery,” she said in a statement. “This will present a new set of challenges.”
This is no time to relax or to succumb to impatience, however. Moody’s on Friday said the Indian economy could see zero growth this year, warning that weak job prospects and a credit crunch “have increased the probability of a more entrenched weakening.” In the United States, the Federal Reserve of Atlanta estimated real GDP growth in the second quarter would contract by 17.6%. Non-farm payrolls in April put the national unemployment rate close to 15%, up from 4.4% previously, as the US posts an all-time record in terms of job losses. Caveats mean the figure could be closer to 20%.
“Total non-farm payroll employment fell by 20.5 million in April, after declining by 870,000 in March,” the US government report read. “The April over-the-month decline is the largest in the history of the series and brought employment to its lowest level since February 2011.”
All told, and the economic damage has forced major energy companies to cutback on production, with some states seeing oil output as “economic waste.” IHS Market estimates that 14 million barrels per day in crude oil output could be cut across the world by the end of June in what it described as “the largest shut-in in the history of the oil industry.” And parts of those shut-ins may never come back. Turning wells off is easy. Turning them back on is another matter.
“When you shut in wells, especially for a long period of time, you have a lot of surprises,” Clay Bretches at Apache Corp. said during a Thursday conference call with analysts “Some of them are good and some of them are bad.”