Why oil prices have surged 94% in the last few days
We examine the factors driving optimism in US and international oil markets.
Oil prices bounce as storage rises less quickly than expected
A string of beats have propelled US Crude prices higher in the last few days, as optimism returns to increasingly volatile oil markets.
On Wednesday, the American Petroleum Institute (API) released a set of US crude oil inventory statistics which showed storage capacity was filling up less quickly than market participants were expecting.
In response to that news, NAB’s Commodity Research Head, Lachlan Shaw told Reuters:
‘It's a little bit of good news that maybe storages aren't filling quite as quickly in the US as you would have thought.’
Mr Shaw added that:
‘The other thing coming through is more detail and a louder groundswell towards plans for removing COVID restrictions, particularly in Europe — in countries like Spain, France, Austria and Switzerland. That’s going to see demand pick up.’
The market got further confirmation that the US crude storage situation was potentially less dire than expected on Thursday, when the US Energy Information Administration (EIA) released their own crude stocks report.
Here, the EIA revealed that total US crude stocks rose by 8.9 million barrels, to 527.6 million barrels – for the week ending 24 April.
According to a Reuters poll, the market was expecting a 10.6 million barrel build.
On a more granular level, the closely watched Cushing Oklahoma crude oil hub – the physical delivery point for West Texas Intermediate (WTI) – saw its total stocks rise by 3.6 million barrels, for the week ending 24 April.
All up, US crude stocks at Cushing now sit at 63.3 million – implying that the facility’s storage utilisation is currently at 81%.
Production cuts drive stability
Elsewhere, OPEC+’s anticipated 9.7 million barrel per day production cut across May and June – which has now officially kicked off – appears to be playing a role in supporting oil prices.
Speaking to Bloomberg, John Kilduff from Again Capital said:
‘The cutbacks being announced and undertaken are real and are going to be significant, so that’s helping to support prices.’
Saudi Arabia and Kuwait had already commenced scaling back production ahead of the official 1 May start date.
Norway also recently announced that it would cut oil production by 250,000 barrels per day in June – equating to a ~13% cut. After June, Norway is planning on easing those cuts to 138,000 barrels per day, for the remainder of CY20.
WTI and Brent futures in focus
Off the back of all this, WTI’s June futures contract has surged in value over the last four sessions.
From an intraday low of US$10.07 a barrel on 28 April – to its last traded price of US$19.59 a barrel (as of 15:13 AEDT) – WTI’s June futures contract has almost doubled in value, rising a staggering 94.5% in just a four day span.
Brent futures have also risen in recent days, last trading at US$25.390 a barrel, according to ICE data.
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