‘Worst is over’ as oil stages a comeback

‘Worst is over’ as oil stages a comeback
West Texas Intermediate gained 20.5 percent. (AFP)
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Updated 06 May 2020

‘Worst is over’ as oil stages a comeback

‘Worst is over’ as oil stages a comeback
  • Prices surge as big banks, analysts say global glut of crude is being drained

DUBAI: Oil markets breathed a sigh of relief on Tuesday amid tentative signs that the global glut of crude was being drained. 

Brent crude, the Middle East benchmark, traded above $30 a barrel for the first time since the middle of last month. It rose by $3.77, or 13.9 percent, to close at $30.97 a barrel.

West Texas Intermediate, the US standard that collapsed into negative territory last month, gained $4.17, or 20.5 percent, to settle at $24.56 a barrel.

Western markets had the weekend to assess the impact of the big OPEC+ cuts that came into effect on Friday, and liked what they saw. Two of the world’s biggest investment banks said oil markets had bottomed out, and predicted a mild recovery.

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Two of the world’s biggest investment banks said oil markets had bottomed out, and predicted a mild recovery

Goldman Sachs said production has started to decline quickly, and raised next year’s forecast prices to $51.38 per barrel for WTI and $55.63 for Brent. “Demand is also beginning to recover from a low base, led by a restarting Chinese economy and improving transportation demand in developed market economies,” the bank said.

Morgan Stanley forecast Brent to rise steadily to $35 by the end of the year. The bank did not expect an immediate rally but “the greatest mismatch in supply/demand is probably behind us,” it said.

The bank said the peak of oversupply in global markets had probably been reached and a storage crunch was abating. “Inventories have built but not quite as strongly as feared. With social distancing measures ramped up in March ... the observed inventory increases have not been quite as strong as feared,” it said

Phil Flynn, senior analyst at Price Futures Group, said: “The market is starting to realize that demand destruction has been terrible, but we’re reopening and demand is going to get better. But the production pullback is just beginning.”

Saudi Arabia’s crude oil exports in May are expected to drop to about 6 million barrels a day, the lowest in almost a decade, under the OPEC+ agreement, analysts told the Reuters news agency.

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The Swiss bank UBS said the easing of coronavirus restrictions in many countries would help balance out supply and demand, leading to a shortfall in supply by the end of the year.

US President Donald Trump, who has attacked OPEC in the past for keeping oil prices high to the detriment of American consumers, tweeted: “Oil prices moving up nicely as demand begins again!”

However, oil trading professionals did not share his optimism. Matt Stanley, a broker in Dubai for the global trader Starfuels, said: “I am fearful of prices suffering another collapse on the back of hope and a perceived demand that is ultimately only going to end in disappointment.”