Brent crude rebounds from more-than 20-year low; US oil up 20% in wild trade
By: Cpt Markets
Tags: Investing, Trading, Oil, Forex, Economics

Justin Zhou| Analyst | CPT Markets|Thursday, 23rd April 2020

Brent crude oil futures rebounded on Wednesday after two consecutive days of losses, while US crude oil futures jumped more than 20%, as OPEC + and other oil producing countries cut production, which may reach 15–20 million barrels / day in May, which will improve the oil market. And last week’s inventory growth in the United States was not as dire as some predicted.

The Oil Market Went Negative,the Big Deal to Cut Oil Production May Not Be Big Enough

Although the US benchmark oil price made history as it fell to a negative value on April 20 (Monday), Saudi Arabia, OPEC and other major oil-producing countries also felt the impact. Royal Bank of Canada Capital Markets (RBC Capital Markets) global commodity strategy director Croft (Helima Croft) said in a report on April 21 that this seems to put OPEC + leaders into a “crisis mode.”

However, their options are limited. Last week, OPEC + had agreed to cut output by 9.7 million barrels / day in the next two months, thus ending the price war between Saudi Arabia and Russia. Demand for oil was hit hard by the spread of the epidemic, which was later compounded by the price war.

Saudi Arabia said on Tuesday that it is preparing to take more measures with other oil-producing countries, and Iraq has made similar statements. OPEC + is scheduled to meet in June.

Even without another formal agreement, the reduction of oil storage space and the decline in demand may force oil-producing countries to further reduce production. An OPEC source told Reuters that it is “logical” to expect the market to force OPEC + oil-producing countries to reduce production more.

EIA Crude Oil Stocks lower than expected, crude oil prices is looking bullish

The US Energy Information Administration (EIA) announced on Wednesday that crude oil inventories increased by 15 million barrels in the week ending April 17, which is in line with analysts ’expectations, but some people had originally estimated that inventories would increase by more than 20 million barrels. EIA said that US gasoline inventories increased by 1 million barrels last week, lower than expected, while the supply of gasoline, which measures demand, rose slightly for the first time in weeks.

The Crude Oil Delivery Center in Cushing, Oklahoma increased crude oil inventories last week by 4.8 million barrels to 59.7 million barrels. According to dealers, Cushing has only about 76 million barrels of oil storage capacity, and most of the remaining idle storage capacity has been rented out.

Below $ 20, oil prices are still in an unstable range

Although oil prices rebounded sharply yesterday, the market risks are still huge. Due to the impact of the US oil 05 contract expiration on Monday. This led to extreme conditions in the first six trading days of the week. The 06 contract of the main US oil contract fell below $ 10 on Tuesday, and the 05 contract fell to a rare negative value on Monday before expiration.

At present, this risk sentiment has not been eliminated, and the market is in a more panic state. Before the US oil 05 contract expires on Monday, the main contract in June remained above $ 20. $ 20 is also a more reasonable price in the market before the plunge, and oil prices are currently in an irrational range. Before returning to above the 20 mark, oil price uncertainty is still very large.