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As we near the end of May, we will put behind us one of the most bullish rallies for the WTI crude oil contract in history with crude jumping almost 75% this month alone. Of course, with WTI prices currently trading at $33.33/barrel, that’s not saying much, as it is widely perceived the breakeven price for domestic crude producers is $32/barrel. The question is: will this rally persist? Let’s review some components to watch out for this summer.

OPEC+ came to an agreement earlier this month to institute record-breaking production cuts of nearly 10 million barrels per day. The production cuts were set to take effect on May 1^st, but some members have taken it upon themselves to start earlier. Kuwait and Saudi Arabia have both made the decision to start scaling back production to work towards the production cut goal. Saudi Arabia has scaled back production from 12 million barrels per day(bpd) over the weekend to reach its goal of 8.5 million bpd.  Kuwait is OPEC’s fourth largest producer and they have also made the decision to start the cuts early. Kuwait’s Oil Minister Khaled Al-Fadhel said that starting the cuts early was because they felt a responsibility to address the market conditions.

OPEC+ reached an agreement to cut 9.7 million barrels per day (mb/d) beginning in May which is a record-breaking cut, but it still may not be enough to stabilize the market. U.S. Secretary of Energy Dan Brouillette said that the total number of cuts globally, when you add in all the non-OPEC countries, should be closer to 20 mb/d. In reality, the number is much smaller than that and will still have an impact, even if it’s not the cut some were expecting. The cuts will help prevent a complete meltdown, even if there is no immediate price rally. The deal is expected to stabilize the global oil price and reduce the market volatility according to Bank of America Merrill Lynch.

Much like some of the most daunting roller coasters in the world, crude oil has provided adrenaline building hill climbs, steep drops, twists, and turns.  Historically, you will be hard pressed to find a more erratic fuel market than the one we have witnessed over the past few months. COVID-19 has sparked drastic demand destruction, the warm winter months have curtailed heating oil demand, wet seasons are delaying farming, and OPEC+ cannot seem to agree on the production levels of crude to help negate the excessive supply on a global scale.

The first quarter of 2020 has absolutely rocked global oil markets due to COVID-19, an OPEC+ supply and price dispute as well as a global economic recession.  What happens next is still unknown, but with global storage on the brink of filling up and demand destruction nearing 20 million bpd, the global oil industry will almost certainly change forever.  IOCs (International Oil Companies) and smaller independents face particularly daunting challenges, while NOCs (National Oil Companies) look to capture more market share while putting their competition out of business.