Oil prices rose this morning, stabilizing above $30 Brent, as traders welcomed a hinted demand recovery and saw a slight decrease in US stock builds.
Rystad Energy's Head of Oil Markets Bjornar Tonhaugen said that the stabilizing of oil prices above the $30 mark is indeed a confidence booster. "Brent stabilizing above $30 gives the market confidence that frightening days of negative prices and record daily declines are behind us."
He added, "The market got a jolt of confidence from the IEA monthly report yesterday (Thursday), where the agency proclaims that the market will draw crude stocks already from July-August and see massive crude stock draws thereafter.
"We also believe in rebalancing of crude in late-June/early-July at the moment as cuts from OPEC+ members, other countries and forced shut-ins join forces."
Tonhaugen continued in his assessment, stating that brave decisions by producers during an extraordinary month was a big factor in market stabilization.
"It really has been an extraordinary month with brave decisions by producers to slash output. No producer expected we would be here with such low production rates back in early March, yet many of them came together to save the market. Rather late than never.
"A point to consider, crude demand from refineries will be held back by a large product overhang that is being now accentuated in diesel, as private mobility increases and boosts gasoline demand again across the globe."
Tonhaugen, however, warns that the second half of the year will have to clear the stock overhang before considering higher prices.
"We warn that the second half of the year will not be met with pre-crisis oil prices again as the gigantic oil stock overhang must first be worked down.
"We believe stocks will be reduced gradually over the next 12 months or so. All bets though hinge upon avoiding a second wave of the coronavirus, which is yet to be seen as countries remove lockdowns around the world.
"For traders every April day was a struggle to follow what's going on, without taking eyes off screens for a moment during the day. So rapid were the swings in prices. May, it seems, is a month when they can finally sit back more comfortably for a moment and take a breath."
