Jun 12, 2020 - Energy & Environment

Oil's comeback is stalling

An illustration of an oil barrel unraveling into rope

Illustration: Aïda Amer/Axios

The crude oil price recovery has hit the skids, a gloomy sign for U.S. producers, some of whom are risking bankruptcy.

What's happening: Oil prices are on track for their first weekly decline in well over a month, per Reuters.

  • Prices for WTI, the U.S. benchmark, are trading at roughly $36.45 this morning, about where they were late yesterday afternoon following two days of declines.
  • "Second wave coronavirus risks on crushing hopes for a steady global economic recovery that was spearheading prospects of improving crude demand," Oanda analyst Edward Moya said in a note yesterday.
  • He cited the "supply glut overhang and diminishing crude demand expectations."

The big picture: "The market has shrugged off a pledge by OPEC+ to extend record output cuts, with sentiment souring this week after the Federal Reserve warned of prolonged damage to the economy by the pandemic and U.S. inventories reached record highs," Bloomberg reports.

Threat level: Prices remain below what it typically takes for companies to drill new wells and in some cases even cover costs for operating existing wells (check out this Dallas Fed survey for a snapshot).

What's next: A Barclays note sees prices starting to rise again eventually, but expect continued near-term headwinds despite the demand revival and supply cuts.

  • They see the pace of the recovery slowing down after the sharp rise from April's troughs.
  • Their note projects U.S. prices averaging $34-per-barrel in the third quarter and $40-per-barrel in Q4, with continued increases throughout next year.

Go deeper: Coronavirus drives oil to a "rapid and brutal adjustment"

Go deeper