Bull Case for Oil Price25 Apr 2020 14:49
“The Bull Case
The fundamental bull case for oil from here is that demand has already bottomed. The trajectory for oil consumption from here on is upward, no matter how gradual, no matter how uneven.
In China, the rebound is already happening. Data from satnav firm TomTom show that morning rush hour congestion was very nearly back at 2019 levels in the last week – a fact that contrasts squarely with all the chin-stroking prophets arguing that Zoom, Houseparty et al will permanently destroy commuter demand.
While there is uncertainty over the future of commuting, the argument can also be made that distrust of public transport will push at least some commuters back into cars.
The International Energy Agency’s monthly report for April estimated demand will bottom this month at 29 million barrels a day below year-earlier levels. That shortfall drops to 26 million barrels a day in May and 15 million barrels a day in June.
The expected June shortfall reflects the 9.7 million barrels a day of output cuts promised by the OPEC+ group of exporters from May. The risk of political instability across that group creates a permanent incentive to keep prices high and has ensured for 50 years that previous breakdowns of output discipline have only ever been temporary.
On top of that, U.S. production which has so far only ticked down modestly, will soon be tumbling. Active rigs in the U.S. have fallen by nearly half since the start of the year, down by another 51 this week alone to 378, according to Baker Hughes. Producers are slashing capital spending and production forecasts with increasing urgency (including ConocoPhillips (NYSE:COP), Continental Resources and Eni SpA this week). Government data indicate that there are only 16 million barrels of free storage at the national hub at Cushing, Okla. When they get maxed out in three weeks time, assuming stocks continue to build at current rates, there will be nowhere left to put it. Marginal fields will have to be shut in.
On top of all that there is the reality that the world isn’t done with oil by a long stretch. No reasonable forecast sees global oil demand peaking until 2040 at the earliest.”
Courtesy of Investing.com
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