Oil prices stopped rising on Wednesday as the market started realising that crude storages continue to fill, after days of prolonged gains.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has provided the following comment on the market:
"The question is not if prices would stop rising, but when. Oil prices have been on a gains rally in the last few days, as enthusiasm was plenty among traders that the OPEC+ cuts, the existing shut-ins and some demand rebound would be enough to already justify a market recovery.
But it is too early for such a recovery, although we do believe that prices will come back to higher levels after a few weeks (our own base case scenario for this year is an average price of around US$34 per Brent barrel).
Traders understood that despite all the positive vibes, something does not complete the picture and it’s called crude stock builds. Indications show that for yet another week, storage is continuing to fill up, despite the shut-ins and the output cuts.
Demand, which indeed now is on the recovery road, is not yet enough to balance the produced oil and that oil has to go somewhere. But well… we are running out of somewhere!
As stocks continue to build as they are currently, it is inevitable that more forced production shut-downs have to occur, except if producers have another ace in the sleeve. But a deck has once four aces and we believe we’ve seen them all.
Oil prices will very likely fall further as we move through May until more shut-ins complete the puzzle. At the point when crude stocks stabilise, then we can say that we have a way up ahead, but we are not there yet."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/06052020/oil-stops-rising-as-storage-reality-weights-in/