Oil major Royal Dutch Shell (RDSB) was one of the biggest risers on the FTSE 100 on Monday morning as the recovery in oil prices continued following April’s retreat of US oil prices into negative territory.
The company was up 5.4% to £12.39, while BP (BP.) gained 5.5% to 312.8p as US crude oil benchmark WTI traded above $30 per barrel and global yardstick Brent headed in the direction of $34 per barrel.
Drilling rig specialist Lamprell (LAM) was one of the largest FTSE All-Share risers as it advanced 21% to 10.6p.
Oil has been boosted by hopes of recovering demand as the world begins to cautiously emerge from lockdown conditions.
Supporting the rebound has also been the impressive commitment to new production quotas shown by producers’ cartel OPEC and its affiliates like Russia (OPEC+).
‘RECOVERY FROM THE ABYSS’
Bloomberg reported that in the first two weeks of agreed production cuts, output was down by 9.7m barrels of oil per day (bopd), amounting to 10% of global demand.
Sustaining the current strength in oil prices will require OPEC+ to maintain its discipline - with Saudi Arabia planning to cut production by a further 1m bopd from 1 June.
Independent producers in the US have also been shutting in production as the chart from Bank of America Merrill Lynch (BoAML) shows.
Source: BoAML estimates
On the demand side, the success of lockdown easing will also be important as governments remain alert to a potential fresh spike in infections.
BoAML commented: ‘The unprecedented crash in WTI prices into negative territory on April 20 sent shockwaves through commodity markets. Since then, front-to-third month WTI crude oil timespreads have rallied furiously, dragging up other benchmarks like Brent and resulting in flatter global crude oil curves.
‘Widespread supply shut ins around the world, incremental fuel demand as economies re-open after Covid-19, and certain strategic purchases have all helped the oil market recover from the abyss.’
