Oil Prices Rebound Nearly 90% In May For Best Month On Record

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TOPLINE

Oil prices increased nearly 90% in May and more than 5% on Friday, boosted by anticipation of improved demand and aided by drastic supply cuts — after shockwaves from the coronavirus pandemic sent the oil market tumbling earlier this year.

https://specials-images.forbesimg.com/imageserve/1211017759/960x0.jpg?fit=scale
A view of the Marathon Petroleum Corp's Los Angeles Refinery in Carson, California, April 25, 2020 ... [+] after the price for crude plunged into negative territory for the first time in history on April 20. - Although oil prices have stabilized somewhat since the unprecedented dive, the world remains in the throes of a glut of crude oil caused by a precipitous fall in demand due to the global coronavirus pandemic coupled with a lack of storage capacity for crude already in transit or still being produced. (Photo by Robyn Beck / AFP) (Photo by ROBYN BECK/AFP via Getty Images)AFP via Getty Images

KEY FACTS

The U.S. oil benchmark, West Texas Intermediate, ended May up 88%, by far its biggest monthly increase ever. 

Still, experts caution reading too much into the monthly record as WTI is still around 46% below its January high of $65.65 per barrel; For the year, oil is down nearly 41% overall. 

“It certainly doesn’t feel like it was oil’s best month ever,” Regina Mayor, KPMG’s global head of energy, told CNBC on Friday.

In April, the demand for oil plummeted by its steepest downturn on record as much of the world went under lockdown in an effort to slow the spread of the virus.

That month saw the price of U.S. oil turn negative for the first time in history — meaning companies were paying traders to take oil off their hands. 

Since then, a global glut of crude has eased and demand has slowly begun to increase, fueled, in part, by consumers turning to the road — instead of public transportation — to travel, pushing prices higher. 

Crucial quote

“The oil market is finally coming to a balance soon,” with supply expected to match demand, Bjørnar Tonhaugen, head of oil markets for consulting firm Rystad Energy, told the Wall Street Journal.

Key background

In April, the world’s top oil producers, including the U.S., Russia and Saudi Arabia, agreed to cut the production of oil, ending an oil price war that saw the price of crude plummet amid a global economic crisis caused by the coronavirus pandemic. OPEC, the 14-nation organization in charge of regulating world oil production, and its allies agreed to cut production by 9.7 million barrels per day as the coronavirus outbreak caused demand for oil to plunge, as Bloomberg first reported.

Further reading

Oil jumps nearly 90% in May to $35, registering best month on record (CNBC)

Here’s What’s Moving Oil Prices (Forbes)

Dow Closes Above 25,000 For First Time Since March (Forbes)

As Cities Reopen, Traffic And Oil Demand Reappear, Rallying Oil Prices (Forbes)