Oil gains on US developments

Rystad Energy's Head of Oil Markets, Bjornar Tonhaugen, has commented:

"In the morning we said no news is bad news, which was the reason oil prices both in WTI and Brent were trading with losses. But during the day we have seen statements by the US government which brought again some enthusiasm in the market.

US President Trump said in a series of Tweets that many states are moving to reopen business activities, including Texas. A ramp up in business activity will give a boost in US domestic oil demand, which can postpone filling the country’s oil storage a bit further in the future.

Demand is paramount in the price equation and if Donald Trump’s Tweets prove right, this will help prices.

Also, US Treasury Secretary Steven Mnuchin said today that the Treasury may provide liquidity to the oil market. As many firms are struggling to fund operations at the moment, having to lay off big numbers of employees, any news of financial aid to the industry is always welcomed as positive news by market participants.

Prices also reversed losses as drillers shut some wells in the US due to the declining price environment, which signals a supply curtailment.

Shutting wells and forcefully cutting production is now what the market expects to keep current price levels.

We expect a series of shut-ins around the world in weeks to come and we have only seen the start of it.

Having nowhere to store the produced oil is already a problem in many regions and will increasingly become one in all producing markets in May. OPEC+ cuts, which are about to start soon, will not save the day as the supply-demand imbalance is too wide already.

US reopening industrial activity can give a temporary boost to prices as traders need space to breath, but we don’t expect the levels to last. Oil prices will likely average at US$20/bbl in the second quarter, with the lowest levels coming sometime in May."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/28042020/oil-gains-on-us-developments/