BAKU, Azerbaijan, May 5
By Leman Zeynalova – Trend:
The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise, said Head of Analysis at Rystad Energy Per Magnus Nysveen, Trend reports.
“The existing problems did not magically get resolved, the storage constraint is still there, but a couple of weeks away, so we will see its effect on prices soon, as the market will get tight,” the expert believes.
But for traders, first things first, the prices cannot only decline daily, the boost in demand has to be cheered for and the current price rebound is exactly that, according to Nysveen. “Make no mistake, this is how the market works, but lower prices will return, hitting a bottom around mid- to end of May”
The analyst believes that the key reason behind the price strengthening is regional traffic data, which indicate the demand bottom is behind us.
“Lockdowns are slowly easing across most regions and in the US. Crude markets are also getting less off-balance, but we remain cautious that a balance cannot be achieved without quicker shutdown of fields and wells. Several operators, both US shale and offshore, now announce shut-ins, a seemingly bullish development. Note that the US oil production has already declined by almost 1 million bpd since the peak in March,” he said.
“However, we yet only observe a fraction of the required shut-ins that are coming during May to avoid critical congestion at storage and shipping terminals,” noted Nysveen.
He pointed out that one exception is Canada where 1 million bpd in actual shut ins have brought WCS up beyond many offshore blends where true spot prices are discounted $5-$15 below frontend benchmarks.
“We remain very cautious short term, but our view is that we will see a price recovery on the longer term. So we are in little doubt that most related markets are close to bottoming now in May, while some "paper markets" have likely passed the bottom already, as the coming price floor in crude markets could be very short-lived and with positive impact on long-term fundamentals,” said the analyst.
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