Oil Price Contango Narrows
May 15th, 2020
The market had a strong up day yesterday as the bulls jumped on the bandwagon after a selloff that took prices to the low end of the market’s trading range and have now rallied back to the top of that range. Many are saying the bullish inventory report, the first draw to crude stocks in 15 weeks, triggered yesterday’s buying, as well as, more supportive demand outlooks but if the bulls are going to sustain any longer term upside, they need an up day today and a strong close. Any weakness or selloff at the end of the day will not be a good for the longer term bulls.
Gasoline demand has rebounded and has been catching headlines, but it is still way off anything near “normal levels”. There is a fairly strong reverse correlation to US unemployment and gasoline demand. The higher the unemployment the lower the gasoline demand. New numbers again yesterday said that new jobless claim were up 3 million people, higher than originally forecast, bringing the total to 36.5 million claims in the last 6 weeks. Bloomberg reported that services industry jobs face a very tough situation as one if every four US restaurants may go out of business because of the pandemic.
China has shown an uptick in crude processing an indication that demand is up there as lock down ends. Reuters report that China’s daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after the lockdowns imposed to prevent the spread of the coronavirus outbreak were eased. The country processed a total of 53.85 million tonnes of crude oil last month, data from the National Bureau of Statistics showed on Friday, equivalent to about 13.1 million barrels per day. That was some 11% higher than 11.78 million barrel per day in March.
Also reported by Reuters. Brent crude oil futures for July are trading at the smallest discount to the contract six month in the future since March. A price structure where the oil for immediate delivery is cheaper than forward months is called contango. A narrowing of the contango usually points to supplies becoming more constrained. This is normally supportive to prices.
Genscape reported that crude oil stocks in Cushing, Ok fell to 62,068,479 million barrels. This is down 4.430 million barrels from Tuesday, May 5th. This should ease some of the concern about storage getting full and the market seeing another month of a wild crude oil futures expiration here in a few day. The odds are good that the market doesn’t see another month of crude oil trading negative.