Oil Market Rebalancing Underway
May 18, 2020
As more places around the globe start to reopen after shutdowns the outlook for many investors and traders is positive and the market is up this morning on this optimism. Production cuts have happened faster than many thought and demand is slowly coming back with the reopening creating the thought that the rebalancing of the oil markets is beginning.
The Baker Hughes Rig Count on Friday saw another big decline in rigs as lower prices have continued to shut in many wells. Crude oil rigs declined by 34 putting the total number of rigs at 258 compared with last year at this time of 802. Total rigs in North America are at 362 compared with last year at this time when total rigs were at 1050.
NYMEX WTI crude oil futures expire tomorrow, and most market participants do not think we will see a repeat of the May expiration when prices traded negative. Some are estimating there may not be enough sellers and prices could rally instead but more than likely after all the moves to get out of the front months will lead to an uneventful expiration.
Chinese demand has been good as was reported last week and the demand in the US has been getting positive press reports as things reopen. There is likely some pent up demand as many of us have been holed up in our houses in some cases for over a month and the itch to just get out has hit. Some of the demand increase is being helped by those that most go to work that have taken their own cars versus mass transit as a safety precaution. There are analysts and traders that caution that the rally maybe too much and too fast and likely to see a correction. Good news will keep the market supported and bad news will pull it back which could lead to a congested market for the medium term.
Barclay’s revised up the WTI crude oil forecast by $6 for 2020 and 416 for 2021 versus last month’s forecast. Barclays’s is now forecasting WTI to average $33 per barrel this year and $50 in 2021.
The Commerce Department reported Friday that US retail sales fell by 16.4% in April from March, with consumers cutting way back on shopping and eating out due to the coronavirus lock-downs. In March, US retail sales fell by 8.3% which was the largest month-to-month fall on record back to 1992. Online retail sale, such as Amazon, rose in April from March by 8.3%.