Too fast too soon as investors struggle to gauge how demand evolves from a sudden stop in global economic activity.

When any asset moves too fast too soon on a conjured what-if scenario, it’s always a precarious perch even more so when facing down impending negative economic news. (US non-farm payrolls).

In the Covid-19 environment, investors are struggling to gauge how consumption evolves from a sudden stop in global economic activity to how the gradual reopening will supplicate that demand.

Sure, the world is reopening, but that does not mean there is a snapback in need of oil?

More broadly, sharp declines in GDP, employment, and income uncertainty and weak consumer confidence all suggest it will be a gradual consumer-led economic bounce back.

However, one (pseudo) positive takeaway is more driving. People are getting back in cars to commute or merely to get out of the house, which is excellent for gasoline demand as that is providing the first phased in bounce to the oil price recovery.

But to sustain this rally, you need more than people driving around the block; you need the heartland’s industrial engines firing on all cylinders and planes taking to the air.

And if you’re looking for bad news to quash your bullish view on oil, you don’t have to go too far. Virtually every central bank around the world will helpfully warn you of the impending downside risks in the economy.

While oil prices have come a long way quickly, in short, Oil markets are still skittish about the pace of demand post-Covid-19.

Last night was one of those inflexion points when WTI hit $26 as shorts were getting creamed, traders took a look in the mirror and asked themselves why are we here.

Supply is still an issue.

On the supply side, it’s worth reflecting on how negatively impactful several more weeks of inventory data builds that could underscore the fundamental headwinds for oil. Even with the early signs that demand is beginning to stabilise, inventory builds are likely to continue for some time, and storage capacity continues to creep up.

Overall, US capacity utilisation is at ~62%, but regional difficulties (e.g., Cushing at 83%) will limit the upside for oil until demand has returned to normal, and inventories begin to drawdown. Inventory levels could remain high for some time, which is a direct offtake of slow demand uptake.

Saudi Arabia jumped the gun?

Saudi Arabia may have jumped the gun, reducing the discount on oil sales, which initially sent Brent soaring 5 % higher midday London. But the gouge provides poor optics as it’s probably not a good idea to raise prices amidst an inventory fire sale even if things appear on the surface to be returning to normalcy with seaborne storage issues nary a worry. That can change pretty quickly in the face of a secondary spreader.

There is still an abundance of life on an upside in this market.

A US crude inventory build significantly below expectations (4.6mb vs. consensus for 7.8mb), and refinery utilisation higher than expected (+90bps week-on-week) surprising failed to sustain the rally in oil.

While helping out the end of week momentum Russia’s oil and condensate output fell to 9.5mb/d over 1-5 May, according to industry sources.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp