Form most oil traders, I suspect this week encapsulated the quarter. There is emerging evidence of the virus peaking in key economies under COVID-19 lock-down.
Yet, macro data as it relates to oil demand, and the market, in general, presents another significant headwind. The anaemic economic data seething out from the US and the IMF’s sobering assessment of the global outlook have provided a reality check of a non-linear recovery for oil markets despite COVID-19 news-flow generally improving globally.
Canada’s sombre reminder
The Bank of Canada’s Senior Deputy Governor, Carolyn Wilkins also provided a sombre reminder that while recovery for Canada could start over the summer, resuscitation from low oil prices could take longer. This view can be extrapolated across global oil price takers
OPEC+ deal hangover
The hangover post-OPEC + continues with oil prices still hobbled as inventory builds present a key obstacle and likely to continue to be across H1 (keep in mind the OPEC+ cuts don’t kick in until 1 May). Further calling attention to this orientation is the IEA Oil Market Report, which sharply cut its 2020 demand and observed that global storage was likely to be filled by mid-year.
Oil markets found baseline support from President Trump’s US reopening plan. But with NYMEX crude prices closing ominously below the psychological WTI $20 per barrel for the second day running, it’s suggesting downside risk remains the dominant factor.
If oil producers fail to address the medium-term structural oversupply situation adequately, oil prices could stay volatile, with risks skewed to the downside for the next few months.
And while a more rapid recovery of global demand via re-openings or a more effective supply response could mean upside surprise to the current forecast. Still, the market will likely re-balance slowly as the OPEC+ deal in its current format won’t offset 2Q demand.
But visibility on the duration is positive as this provides more wiggle room for shut-ins or even additional storage to more effectively bringing the supply and demand equation to a more manageable reading.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp