Oil Price Fundamental Daily Forecast – Rally Not Likely to Last Unless Storage Capacity Problem is Fixed

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher shortly before the regular session opening on Thursday, elevated by signs that the U.S. crude glut is not growing as quickly as expected and of a rise in fuel demand, which has been crushed by the coronavirus.

At 10:18 GMT, June WTI crude oil is trading $17.47, up $2.41 or +16.00% and June Brent crude oil is at $25.33, up $2.79 or +12.38%.

Oversupply Concerns Dampened

Storage concerns continue to weigh on markets with the International Energy Agency (IEA) warning that global capacity could reach its maximum by mid-June and that energy demand could slump by a record 6% in 2020 due to lockdowns. Nevertheless, WTI and Brent crude oil are rallying because of an easing of worries over rising U.S. stockpiles.

It started late Tuesday with the release of the American Petroleum Institute (API) weekly inventories report that showed a smaller than expected build, and continued on Wednesday when the U.S. Energy Information Administration (EIA) reported numbers below the forecasts.

According to the EIA, U.S. crude inventories grew by 9 million barrels last week to 527.6 million barrels, well below the 10.4 million-barrel rise analysts polled by Reuters had expected.

U.S. gasoline stockpiles fell by 3.7 million barrels from record highs the previous week, with a slight rise in fuel demand offsetting a rebound in refinery output.

Asian Refiners Expect Fresh Saudi Oil Price Cuts in June

Asian refiners see Saudi Arabia cutting the official selling prices (OSP) of its crude for a fourth straight month in June after Middle East benchmarks slumped on poor refining margins as the coronavirus pandemic slammed demand.

Shell Cuts Dividend for First Time Since 1940s as Oil Demand Collapses

Royal Dutch Shell RDSa. Cut its dividend for the first time in 80 years and suspended the next tranche of its share buyback program on Thursday following the collapse in global oil demand due to the coronavirus pandemic.

“Given the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty, we are taking further prudent steps to bolster our resilience, underpin the strength of our balance sheet and support the long-term value creation of Shell,” Chief Executive Ben van Beurden said in a statement.

Daily Forecast

What we’re seeing in the futures market is profit-taking and light short-covering. Storage capacity is getting close to overflowing, but at a slower speed so short-sellers are making adjustments.

The smaller inventory builds should be noted but we’re going to need to see a continuation of this trend in the coming weeks to suggest the worst might be behind us. However, the reality is the already-stretched storage capacity is getting fuller and fuller every week, a rise in prices cannot be sustainable for long as the problem is not really resolved.