Oil well pump jacks located in Almond Orchard located over the Monterey Shale in San Joaquin Valley.
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The oil market will recover slowly from the unprecedented demand loss due to the coronavirus, and the road to recovery will be marked by three distinct phases, IHS Markit said Tuesday.
"Oil markets can expect more pain to come in the weeks and months ahead as they face an uphill battle back to 'normal,'" said Roger Diwan, vice president at IHS Markit. As the market contends with record demand destruction as well as record supply cuts, he said the fundamentals of the oil market could be altered for years to come.
Prices have bounced off their recent lows — which at one point saw West Texas Intermediate plunge below zero and into negative territory — but WTI is still trading about 60% below its recent high of $63.73 from January.
By some estimates, as much as one third of global demand was sapped in April as the coronavirus halted travel and shuttered businesses. In the face of plunging oil prices, OPEC and its oil-producing allies agreed to a record production cut, and Norway and Canada are among the other nations that have scaled back production. In the United States, a number of companies, including giants Exxon Mobil and Chevron, have slashed production.
"The road to oil price recovery will likely be choppy and plagued with stop-and-go rallies and selling cycles until some level of certainty is restored," Diwan said.
Looking ahead to the next two years, Diwan sees the recovery unfolding in three distinct phases: