Economy

The First Signs Of Real Oil Demand Recovery Are Here

The First Signs Of Real Oil Demand Recovery Are Here”

"Market sentiment has turned cautiously constructive since the end of April and I expect it to remain as such unless there are major setbacks in terms of infection rates", said Vandana Hari, founder of Vanda Insights in Singapore.

The IEA said the easing of coronavirus-related restrictions was helping demand in energy markets.

So oil production is reacting in a big way to market forces and economic activity beginning a gradual but fragile recovery.

Meanwhile, US crude inventories fell after 15 weeks of declines, the Energy Information Administration said on Wednesday.

Oil is still down more than 50% this year after a rout that pushed prices below zero and the road back to pre-virus levels of demand looks long and uncertain.

The IEA expects global crude inventories to fall by about 5.5 million barrels per day (bpd) in the second half of this year.

"Our expectation is that oil markets reach the inflection point of the equilibrium of supply equating demand in late May/early June, with a deficit set to follow".

Goldman expects oil prices to have limited upside in coming months, citing a big inventory overhang and the ability for shut-in production in North America to restart if prices rally further. It now sees Brent prices averaging $37 a barrel and WTI at $33 this year.

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"We believe that the next stage of the oil market rebalancing will be one of range-bound spot prices with the most notable shifts being a decline in implied volatility as well as a continued flattening of the forward curve without long-dated prices rising yet", it said.

Despite a faster than expected recovery in demand and steep output cuts by OPEC+ and USA shale producers, oil price gains could remain limited in the near term due to huge global oil stock overhang and the potential for price-sensitive United States shale producers to restart wells quickly, Goldman said.

However, recovering demand and lower output would push the global oil market into deficit in June, it said in a note dated May 13. The agency boosted its 2020 demand estimate by 700,000 barrels a day, but it still remains set for an annual plunge of 8.6 million a day, or about 9%.

While now in less danger of hitting tank tops, global oil stock levels are expected to continue rising in the coming weeks, keeping pressure on benchmark prices and differentials, HSBC said in a note.

The catalyst behind today's strength is a report that showed China's daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after lock downs imposed to prevent the spread of the coronavirus outbreak were eased.

This is still sharply down from previous year by 19.9 Mb/d.

Barclays still raised its forecasts for Brent and WTI by US$5 to US$6 a barrel for 2020 and by US$16 a barrel for 2021.



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