With the market constantly trying to gauge the global pandemics impact on demand it is now clear that some of the overly bearish forecasts, including those predicted by the International Energy Agency in their Oil Market Report for April, have been overly pessimistic. A 29 million barrels/day demand drop in April followed by 26 million in May, as the agency predicted, would have sent the level of global storage towards tank tops within weeks. Instead a speculative frenzy, both by retail and hedge funds traders have sent the price sharply higher in the belief that the worst is now behind us.
Whether true or not very much depends on many moving parts such as
- The speed with which global demand can recover and to what level compared with before
- OPEC+ implementing the cuts and maintain them in order to bring down the overhang of stocks
- The Covid-19 pandemic doesn’t mutate to resurface in a different format
- The price of oil not reaching levels where planned production cuts are scraped or new begin
Later today at 14:30 GMT the Energy Information Administration will publish its weekly status report on crude oil storage, production and trade. The American Petroleum Institute in their report from yesterday saw a bigger than expected rise at Cushing, the major storage facility with a capacity of 76 million barrels and delivery hub for WTI crude oil futures. Off-setting this was another weekly drop in gasoline stocks, something the market took as a confirmation demand from US motorist continues to recover.