Oil Continues To Rally As Traders Believe That The Worst Is OverOil ignores the increase of U.S. – China tensions and continues its upside move as supply/demand balance improves.
Oil Video 15.05.20.
Goldman Sachs Believes That The Market Is Headed For Deficit In June
Goldman Sachs stated that the oil market may experience deficit in June as oil demand improves while oil production cuts intensify.
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The recent EIA Weekly Petroleum Status report showed a surprising decline in U.S. crude oil inventories. If inventories continue to decline, the market will view it as a sign that demand is increasing at a time when the domestic oil production is in a downside trend.
According to the latest EIA report, U.S. domestic oil production has declined to 11.6 million barrels per day (bpd). The previous Baker Hughes weekly survey showed that active U.S. drilling rigs targeting crude oil declined to 292, so it is highly likely that the U.S. production will continue to fall.
Interestingly, Goldman Sachs does not expect oil price upside from current levels despite its forecast of a deficit in June. The reasons for this are the uncertainty about the global demand recovery and the inventory overhang which will continue to put some pressure on oil prices for the upcoming weeks.
Will Oil Rally Ignore The Increase Of U.S. – China Tensions?
U.S. and China have exchanged threats in what appears to be a new round of their standoff. The U.S. is not satisfied with China’s response to the coronavirus threat and plans to block shipments of semiconductors to China’s Huawei.
Meanwhile, China’s newspaper the Global Times reported that the country was ready to put U.S. companies on an unreliable entity list in case the U.S. damages Huawei position.
At this point, no actual moves were made but the increase of U.S. – China tensions comes at the worst possible time as the world economy tries to recover following the acute phase of the coronavirus crisis.
In case of real anti-China moves from the U.S. administration, trade with China may suffer which will put additional pressure on the demand for oil. In my opinion, this story should be followed closely as another phase of a trade war between the two biggest economies can damage the fragile recovery and limit prospects for oil price upside.