Oil Is Under Pressure Again As Crude Inventories Build

U.S. And Russia Hold First Talks But Do Not Agree About Any Steps To Support The Oil Market

Yesterday, oil prices got some support on hopes that U.S. and Russia will talk about the current oil market situation. These talks were arranged quickly, and the U.S. Energy Secretary Dan Brouillette talked to the Russian Minister of Energy Alexander Novak.

No exact steps have been taken following these talks. This is not surprising since there is little that Russia or U.S. can do for oil prices in the current environment. The coronavirus pandemic dealt such a major blow to oil demand that only a major worldwide production cut could improve the situation with pricing.

In addition, the virus situation is very fluid and no one knows when the current virus containment measures will end. The world continues to experience major upside in coronavirus cases, and the total number of cases will soon breach the 1 million mark.

In this situation, the U.S. – Russia talks are providing psychological support for the market, but it remains to be seen whether such support will be sufficient enough to keep oil above $20.

Interestingly, Russia failed to enter into a market share war with Saudi Arabia and will not increase oil production in April. The reason for this is simple – there are no clients for this additional oil output.

EIA Weekly Petroleum Status Report Shows A Major Increase In Crude Oil Inventories

First, the API report and then the EIA report have shown a major increase in crude oil inventories. According to EIA, commercial crude inventories have increased by 13.8 million barrels compared to the levels of the previous week.

Analysts have expected a more modest increase, so the crude oil inventories report could serve as an additional bearish catalyst for oil.

Meanwhile, the U.S. is trying to find ways to support domestic oil producers during the current crisis. According to a Reuters report, space in the strategic reserve could be leased out so that oil producers do not have to stop production.

It remains to be seen whether such measure will be implemented and whether it will actually help the domestic oil production as the current virus containment measures in the U.S. are dealing a heavy blow to oil consumption and will last until the end of April.

Some help is certainly better than no help in the current environment, but I doubt that such measures will change the near-term supply/demand balance.