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Oil Trading Giants Vitol, Trafigura See Rapid Demand Rebound

Javier Blas

(Bloomberg) -- Global oil demand is recovering at a rapid pace this month as Europe and the U.S. join the initial China-led upturn, according to two of the world’s biggest commodity trading houses.

With governments around the world easing lockdowns imposed to contain the coronavirus outbreak, consumption of gasoline and diesel is increasing. Yet, jet fuel demand remains depressed, and fears of a second wave of outbreaks are clouding the outlook, according to Vitol Group and Trafigura Group.

Saudi Aramco, the world’s biggest exporter, echoed the comments.

Brent crude, the global benchmark, has stabilized near $40 a barrel this month, rebounding sharply from a low of about $16 a barrel in April. Recovering consumption has also significantly improved the differentials paid for real barrels of oil. In another sign of a stronger underlying market, the shape of the price curve for Brent has flattened, suggesting growing near-term demand.

Vitol, the world’s largest independent oil trader, estimates that global oil use is rising by 1.4 million barrels a day every week in June, taking this month’s growth to more than 5.5 million barrels.

“Our short-term tracking of demand confirms a healthy demand recovery from the lows of April,” Chief Economist Giovanni Serio said. “China led the recovery in April and May and in the past couple of weeks, U.S. and European countries have followed.”

Trafigura said global oil demand is now about 10 million barrels a day below pre-crisis levels, a significant improvement from the about 30 million barrels a day it estimated for a brief period in late March and early April.

“Oil demand is creeping back,” said Ben Luckock, co-head of oil trading at the second-largest trader. “Globally, we are probably back to 90% of normal levels, but the exact percentage varies with the location.” Chinese oil demand is back to levels before the coronavirus, he said.

Vitol and Trafigura have a key vantage point over the global petroleum market as top oil traders. Every day, the two trading houses handle nearly 15 million barrels of crude and refined products, more than enough to meet the consumption of China.

Aramco’s View

These views were backed up by Amin Nasser, Saudi Aramco’s chief executive officer, on Thursday. Demand is currently at about 90 million barrels a day, or 10% lower than before the pandemic, he said.

“The worst is definitely behind us,” he told reporters in a conference call. There are many forecasts for demand to be near 96 million barrels a day in the second half of this year, he said.

Despite their relatively bullish tone for June, both Vitol and Trafigura are cautious about the potential for a second virus wave later this year, particularly after the Chinese government imposed a partial lockdown in Beijing following a local outbreak.

Trafigura was among the first to sound the alarm three months ago about the rapid drop in oil consumption as the deadly public health crisis was unfolding. The precipitous drop in energy demand in March and April sent West Texas Intermediate oil prices in New York below zero for the first time in history. Prices have since recovered, but are still far below the levels of early this year.

New Equilibrium

With demand rebounding and the OPEC+ alliance improving compliance on production cuts, Luckock said the oil market is finding a new equilibrium.

“At $40 a barrel, we can trade a few dollars higher and a few lower. But for the first time in a few months you can see a range,” he said. “The market stability is here to stay.”

The physical market, where actual barrels of oil change hands, is also improving. For example, Urals crude, Russia’s flagship export, is trading at a record high premium to Brent. Dated Brent, the North Sea blend used to price the majority of the world’s oil, has more than tripled since late April, according to traders monitoring S&P Global Platts.

“The physical market is strong,” Luckock said. “There’s good demand for North Sea crude and most of the regional overhang of floating storage has cleared.”

(Updates with Saudi Aramco comments from the third paragraph.)

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