Opinion
OMJ anticipates oil market movements
“Oil prices are in free fall as the market tries to force a rebalancing of supply and demand. The storage crisis which is now being played out was inevitable after the combined effect of the failure of OPEC and Russia to agree cuts on 6th March and widespread COVID lockdowns taking effect resulting in oil demand down to about 70m bpd from 100m bpd. The cuts from 1st May, agreed over the Easter weekend, will shift things in the right direction but still leave a Q2 2020 oversupply of around 20m bpd due to the falling demand.
“The latest data (15th April) indicates “US Total Oil Demand” down around 6,000 million bpd from before the COVID crisis spread to the US. And the fall in demand in the US is replicated across the world. The US Gasoline demand was 9.327m bpd before the crisis and is now 5.077m bpd (1-9 April 2020) and the demand for jet fuel in the US also decreased by just under 69% bpd with US distillate demand reduced by 0.933m bpd.
Anticipating the direction of travel
Even as early as late March, the OMJ daily report was already anticipating the current issues; ‘In the near term we expect things to get rather messy in April and May as storage fills. Oil analysts continue to warn that global oil storage tanks will be full by mid-May.’
And by early April: ‘Our expected scenario is full global oil tanks in late April and into May which would result in a very “hard landing for oil.”’ A forecast which certainly played out in the spectacular and historic lows seen at time of writing
It is reported that most storage tanks in N.W.E are either full or booked with traders reporting no available space on key storage locations which affect price benchmarks such as inland Rhine and ARA regions. Key far East nations such as India report 95% full tanks with refineries now reducing production by 50% and cancelling crude deliveries.
On March 11, the daily report suggested that; “In a worst-case scenario the Dow Jones could fall another 28% to 18,000, but hopefully support at 22,700 will hold. This is important to oil markets because in a crisis like this, both oil and equities will typically track each other. A fall in the Dow Jones to 18,000 would likely result in Brent Crude falling to $25/b”
On that day, the Dow Jones Industrial Average fell to 18,213 on 23 March as predicted by OMJ, and on the same day Brent Crude fell to $24.68
Outlook
Asked about the likely outlook Ian commented, “We expect demand to rebound in late May and June as the lockdown is lifted across the US and Europe. However, demand during the summer will likely level off much lower than normal.
“Global oil stocks will remain high through 2020 and it is likely crude prices will remain below $45 during 2020 and well into 2021. We also expect some important demand sectors such as aviation to take years to recover resulting in low cost heating oil for UK and Ireland consumers over the next few years. “