April 2020 was historic for the global oil market. The price of West Texas Intermediate (WTI) oil futures contract for May 2020 delivery turned negative, dipping to a low of -$3 7.6/b. Remarkably, the COVID-19 induced oil demand destruction, led to storage overcapacity, with oil buyers rejecting crude oil to be delivered in the month of May. Contrariwise, the WTI futures contract for the month of June expired yesterday on a positive note, at $3 1.8/b as at the time of writing, recovering by 184.4% m/m. Similarly, Brent prices closed at $3 4.5/b, up 3 4.9% m/m. The question is; has the fortune in the oil market actually changed?
For a fact, we know that the supply and demand dynamics of the global oil market is rebalancing at a better scale compared to April. Notably, demand is recovering gradually with Chinese (1 3.0% of global demand) demand reportedly back to pre-pandemic levels. The industrial output from the Asian giant also told a great story, expanding 3.9% y/y in Apr 2020. In addition, oil demand Is picking up from many European countries that are slowly allowing businesses to reopen. Furthermore, for the week ended May 8 t h, the Energy Information Administration (EIA) reported a decline of 745,000 barrels in U.S. crude inventories, for the first time in 15 weeks.
On the supply side, the massive production cuts from both OPEC & Non-OPEC oil producers, estimated to be above 9.7million b/d, has further supported price recovery. To further curb the oversupply, Saudi Arabia announced plans to trim production by an additional 1 million b/d in June. Bearing all the above In mind, the outlook for oil prices is increasing positive, with a realistic support level at $3 0.0/b.
United Capital Research