Despite signs of firmer demand, oil prices ease the dim economic outlook.

Global demand is on the up, as the lockdown is easing, and Opec, Russia and, decisively, the USA have cut supply.

Despite signs of firmer demand, oil prices ease the dim economic outlook.

On 13 May, oil prices plunged as fears about the potential economic effects of the coronavirus pandemic outweighed signs of major oil producers rising demand and production cuts. Brent crude futures were trading down 11 cents, or 0.3 %, at $34.54 per barrel at 0031 GMT for July delivery. Crude futures for July in the U.S. West Texas Intermediate (WTI) were down 13 cents or 0.4 %, at $31.83 a barrel. The July contract was the first month after June's WTI futures expired on 19 May, avoiding the uncertainty of May's expiry last month when prices fell into negative territory.

Oil prices have risen in the last three weeks, with both benchmarks climbing to above $30 for the first time in more than a month on 18 May, backed by massive cutbacks in output from major oil producers and signs of increased demand.

A month ago came the alarm of uncertainty, when the price of the US benchmark went negative. Global production outstripped demand considerably. Storage tanks were either filled up, or booked up at Cushing, Oklahoma-the hub for storing the region's oil. And the monthly termination of distribution contracts came in a quirk of America's oil market, with several traders unable to store the black stuff. And they had to pay to get it offloaded. By mid-May, with even more supply and even less storage, things were set fair for more of the same chaos.

To some extent, China and its neighbors have fired up their economies. That is beginning to happen in Europe and North America. A more optimistic climate from eased lockdown and a supportive US Fed has lifted financial markets on May 18. Supply has been cut. Last month, the ultimate deal between the Opec oil exporter cartel and non-member Russia was not enough, but Saudis added an additional tranche of production cuts. There is still an imbalance and the price is still lower than that which the producers want or need. But for now it appears stable.

In the US one of the most critical aspects of the supply cut was. America doesn't have the ability to turn the taps on an autocrat. A historic quirk of Texas oil industry is that Texas Railroad Commission regulates it. It met earlier this month, and decided not to enforce any restrictions.


That's because there was enough restraint on the market. Fracking is a technique to boom and bust. Production had been very strong in March. The United States had been the largest oil producer in the world. But it had lost two-thirds of the temporary drilling rigs used to frack for oil and gas by the middle of this month, and counted regularly by industry data specialist Baker Hughes. This will hurt those who have invested in the US boom, but it is good news for other producers who wanted to boost prices.

Indeed it means that the US has become the swing producer. Instead of controlling the taps and therefore the price of the Saudi-led Opec cartel, the price has become the mechanism for Texan and Dakotan drillers to match demand with supply.

There is another item worthy of notice about last month's decreased volatility. Industry analysts are explaining much of the plunge into negative prices with reference to investment fund speculative flows. There are steps in the pipeline to limit investors' ability to push US markets that way-but they were also in the pipeline 12 years ago, when speculators pushed the price to a spike of $145. That is important because volatility directly affects oil companies' investment decisions, and this feeds into jobs. Much job. In an election year President Trump is mindful of that. Last week he performed an incredible contortion, with a Tweet welcoming both the oil prices-meaning jobs-and low fuel costs, which has felt like a tax cut.

One asset which is always there as a safe haven in an investment storm in times of crisis is gold. It gives nothing to you, but it is rare and it does not corrode. It has been rising in recent weeks and is now trading at its highest level since 2012, above $1,750 per ounce.