Apparently this morning ‘oil prices fall on supply glut’, well yes. Who are these people who are writing these stories? Have they been living under a rock for the entirety of 2020?
You don’t just wake up on a Monday morning in the middle of May having followed this market and suddenly conclude that the market is coming off because of a glut. It’s not so much a glut as a avalanche, an unstoppable tsunami of black gold, the juggernaut of sticky black stuff on its unending march towards the accolade of the world’s worst performing commodity in 2020.
The fall this morning seems more likely to have been driven by the fact that we have moved up over the past few days, and this has topped the range. It’s true that there is a fear of a second wave of the coronavirus as many countries are now relaxing their lockdown measures.
The fundamentals, however, are giving a more positive picture than previously. Chinese inventories have shrunk in recent weeks after rising to record levels. Supplies have been drawn out of storage as refineries ramp up operations to meet rising demand from an economy emerging from lockdown. Across the Pacific, the number of operating oil and gas rigs in the world’s largest oil producer fell to 374 in the week to May 8, a record low according to data released on Friday from energy services firm Baker Hughes going back to 1940.
It really does look like the biggest casualty from this price collapse is going to be the world’s largest oil producer. Is this a sign of the future of things to come, or a temporary blip? Only time will tell, but for the time being it looks like the US is taking the hit the market needs it to.