For oil, a new normal looms.

Byline: Syed Rashid Husain

Oil markets have surged. Demand is up. Supply has tightened. Around the same time last month, it was a blood bath. Now markets are somewhat buoyant. A complete turnaround, indeed.

Yet, the question remains; is it sustainable?

A number of factors have contributed. Countries are opening up. Traffic on the streets has gone up. Lockdown and restrictions are being lifted in a number of countries. People have begun commuting, though mostly to their work places. Many continue to avoid public transport and are using cars, to avoid contact with others - as much as possible. The fear factor is still holding up.

This 'increase' in demand has impacted the crude market prices. But is it really a demand build up? Economies had to open up, one day or the other. They could not have stayed closed forever. And once open, crude consumption levels had to go up. Everyone knew that. Yet the fact is that global consumption is not back to pre-pandemic levels. People continue to be cautious.

In reality, this is not a demand build up. This is catching up on the lost demand - and only to an extent - while a 'new normal' is being carved out.

In the meantime, global crude supplies have gone down - and by a margin. The Organisation of the Petroleum Exporting Countries (Opec) led by Saudi Arabia and its non-Opec partners led by Russia, continue to tighten taps. With extreme political pressure exerted on Saudi Arabia to cut supplies, Riyadh is shouldering the lion's share of the cuts. Further, it has just been announced that output from the Saudi-Kuwait neutral zone, shared equally by both the countries, would also be halted for a month from June 1. That would be taking out somewhere between 300,000 to half a million barrels per day from the global output.

Involuntary output cuts from the world's largest producer, the United States is also contributing significantly to the balancing act. In fact, American oil production is dwindling much faster and deeper than analysts initially thought.

The EIA's estimate of Weekly US Field Production of Crude Oil (and condensate), for the week ending on the 15 May 2020, shows the production of 11.5 million barrels per day, a reduction of 1.6m bpd since the estimated peak production of 13.1m bpd reported for the week ending 13 March 2020.

According to OIlprice.com, the US and Canada appear to have lost somewhere between 3.5 and...