The energy industry is bracing for a possible slide in oil markets as a second wave of coronavirus cases nationally threatens prospects for a quick economic recovery.
Several states, including Texas, are reporting sharp spikes in coronavirus cases, raising the risk of depressed economic activity and with it, energy demand and prices. Rystad Energy, a Norwegian research firm, said this week that there are “valid concerns that the world is in for a prolonged period of dealing with (the virus’) consequences.
“If infections and hospitalizations rise even more and a second wave becomes a reality, the market will get depressed again with demand declining,” Rystad said.
Oil prices have made a swift and surprising recovery from the coronavirus-driven price collapse of March and April, closing above $40 a barrel on Monday. West Texas Intermediate, the U.S. benchmark, plunged to negative-$37 on April 20. WTI was trading at $38.47 midday Friday, down slightly from Thursday’s settlement.
The recovery has been tenuous, however, as no one is certain whether a second wave of cases would lead to business shutdowns and depressed consumer activity. Harris County on Friday issued a new “stay home, work safe” advisory, asking residents to stay home except for essential needs, work from home if possible and to avoid unnecessary travel.
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Some analysts are concerned about a “double dip” in oil prices, which could lead to prolonged pain in the industry and in Houston, which employs tens of thousands of energy workers.
“If this was a normal economic cycle and we were looking at lower prices because we had just been in a recession, we wouldn’t expect a double dip,” said Jennifer Rowland, a senior energy analyst at Raymond James. “But we’re in completely uncharted territory because this is virus driven. We don’t know its trajectory and its hard to have any confidence in past parallels.”
A double dip in oil demand and prices will depend on whether state and local governments impose another lockdown or allow businesses to remain open with mandates on face masks and social distancing.
Read More: Oil industry braces for possible double dip in prices as virus cases spike