Fortunately, the global glut is in better shape due to North American shut-ins and turndowns, which will only increase and Saudi Arabia’s, “whatever it takes” policy continues to resonate.
Both of which possibly saved oil prices plumbing the depths of despair after the road to recovery hit a massive pothole when Dr Fauci dialled down the slope of the market recovery when suggesting US lockdowns need to be maintained.
Oil prices have been getting supported as road travel is increasing as lockdowns ease, but absent international travel oil still was not lighting up as that was considered to be one of the last areas to recover.
Yet, the relatively sanguine reaction (so far) to horrible news for oil assets suggests the market is in a much better place than only a week ago considering investor’s positive take on the recovery just ran into a brick wall on Dr Fauci’s guidance.
While the market feels more comfortable on the supply side of the equation, on the demand side, the focus will continue to revolve around the risks of easing lockdowns or even the extensions which might not deal knock out blow to oil prices since this was primarily a supply cut driven rally.
But the oil bulls are certainly not charging out of the pen this morning with the clock turned back on recovery.
Whatever happens in 2Q and there continue to be risks of another significant leg down for oil if high global inventories come back into focus as the recovery sags, especially if lockdowns get extended.
But OPEC+ continues to signal a willingness to do what is necessary to stabilise the oil price, and that should limit downside.
Evidence of proper compliance with the new agreement will be significant, but it is evident to all that the stakes are high, so compliance commitment will remain firm and more short-term voluntary cuts could be in the offing.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp