Crude Oil Bounces For Now; Downside Risks Dominate
Oil markets bounced amid volatile trading Wednesday, but remained at historically low levels amid concerns over storage capacity and a production glut with no clear end in sight.
AT 9:15 AM ET (1315 GMT), U.S. crude futures traded 19.6% higher at $13.84 a barrel, while the international benchmark Brent contract rose 7.8% to $20.82, having fallen as low as $15.99, the lowest level since June 1999.
The recent sharp drop in the price of oil - let’s not forget the May WTI contract actually settled Monday sharply in negative territory - prompted members of the Organization of Petroleum Exporting Countries and their allies, the group called OPEC+, to hold an unscheduled call Tuesday. There were no immediate results.
Similarly, the Texas oil and gas regulator, the Texas Railroad Commission, met on Tuesday to hear testimony about potentially curtailing statewide oil production, but delayed coming to any conclusion.
In the latest sign of excess supply, the American Petroleum Institute on Tuesday reported that U.S. crude inventories rose by 13.2 million barrels, against analyst expectations for an increase of 13.1 million barrels.
The U.S. government's official supply report is due later on Wednesday.
"After a record 19.3 million barrel crude build for week 15, we now anticipate a 23.6 million barrel build for week 16, an even more devastating blow to the already overfilled storage situation at Cushing and beyond," said analysts at Rystad Energy, in a research note.
"The oil market is in deep trouble and is unlikely to shake off its malaise any time soon," said Stephen Brennock of oil broker PVM. "Demand is low, supply is high and storage is full."
Although prices are edging higher Wednesday, downside risks are dominating, analysts at Danaske Bank agreed, “with limited OPEC+ compliance, a slower-than-expected reopening of western economies and/or new virus waves requiring new closures still key risks.”
Two numbers - 30% and 23% - tell the story simply, said BNY Mellon. Global demand has probably shrunk by around 30%, and OPEC+ supply cuts are 23% with a few million barrels thrown in from the Americas.