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Oil prices rise as result of market balance optimism

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Oilfield Technology,

Oil prices rose this morning on indications that the global oil market is getting balanced soon, as supply cuts seem to meet the gradual demand rebound.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the morning's developments:

"Oil prices ticked up this morning on indications that the oil market is finally coming to a balance soon. Russia’s Energy Minister also said yesterday that crude markets are rebalancing in June or July.

In Rystad Energy we concur that global crude supply in June will likely be down 12 million bpd from March-levels.

The 16 million bpd oversupply in crude during April could be reversed altogether by June, helped by a 4 million bpd recovery in crude demand and a 12 million bpd cut in crude supply.

OPEC+ is pulling the most weight by far, effectively reducing supply by nearly 9 million bpd while Non-OPEC+ crude supply is down by more than 3.5 million bpd from March levels.

The US and Canada are to thank for the latter as they are the countries that have been mostly hit by the production shut-in wave. The flip side of the coin is that the world’s available crude production capacity, that could come back onstream in a matter of months is a whopping 13 million bpd – the greatest supply cushion since the 1980s. So for this oil price rally to be sustained, demand must continue to recover closer to normal levels at the same time as global supply is withheld from the market. This is exactly what OPEC+ knows and is why the upcoming OPEC+ meeting on 9 June will need to see a roll-over of the current agreement to hold 7.7 million bpd off the market for 2H20. Otherwise the oil price rally will fizzle out sooner rather than later.

And don’t forget the 1 billion barrels of crude built into onshore and offshore storage during 1H20 that needs to be worked down before the return to “normal” oil prices can occur.

Seeing the bigger picture though, the market has escaped a collapse. It’s not only oil that has been hit by Covid-19, it’s the whole world, we shouldn’t forget it. And as the world seems to recover slowly, so does oil. If the world gets hit by a second pandemic wave, oil will also follow.

As things are now, this year’s second half is poised to be the time of partial recovery from Covid-19 and also the path to higher oil prices."

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