The April slump in crude oil is continuing to attract speculative buying in May, and the outlook remains bleak with the market having a long way to go before balancing out, analysts say.
The risk of storage running out is being offset by the focus on falling production and the expected pick-up in demand, Ole Hansen, head of commodity strategy at Saxo Bank.
On Monday, WTI crude oil was trading 4.95% higher at $20.73 at the time of publication.
Crude Oil Market Outlook
The recent crash in oil demand brought prices below zero in April as storage for the commodity ran out, but this issue is a short-term one. One analyst says the market may be on a path towards balancing but it’s not there yet, with surplus still running high.
“Optimism spread in the crude oil market in the second part of last week, but this morning (4 May) it is back to the grey reality of things,” Bjarne Schieldrop, chief commodities analyst at SEB, says in a note.
The global economy is "utterly depressed," and the global oil market is still running a surplus even after cuts from OPEC+ kicked in Friday, the analyst says.
"The situation is improving with demand ticking a little higher and supply declining along with active cuts and attrition. However, supply is only down by around 9–12m bl/day even including the cuts from OPEC+, and this leaves the market with a huge running surplus. Damage is still being done and the running surplus continues to push inventories higher and spot prices lower for now."
The market is on a path toward balancing, but we are not there yet, with the surplus still running high, he says.
May 2020 is going to be extremely challenging, and June could be too and this will be fully displayed in the physical spot market and further rises in oil inventories, Schieldrop says.
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