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Oil Rebounds After Violent Moves Of The Previous Days

By:
Vladimir Zernov
Published: Apr 22, 2020, 15:23 UTC

Oil gets support from new U.S. coronavirus aid package and global risk-on sentiment in the markets.

Crude Oil

Oil Video 22.04.20.

Oil Gains Ground After Historic Downside Moves

Oil prices have finally rebounded following May 2020 contract historic move to the negative territory on Monday and a major downside move of the June 2020 contract on Tuesday.

The optimism seems to be fueled by another round of U.S. aid to the economy and traders’ speculative desire to scoop up cheap oil in hope for better supply/demand balance in June.

I’d note that the trading action is very volatile, and it’s clear that market participants have yet to determine suitable levels for oil prices in the current environment.

In all likelihood, the search for appropriate levels (and the decreased volatility that comes with such levels) will take some time so oil price dynamics will dominate global headlines in the upcoming days.

Some southern U.S. states have decided to start reopening their economies, so the market will soon get data on how fast oil consumption increases when certain measures are lifted.

At this point, analysts and traders are walking in the dark, and there are no reliable forecasts on how fast oil consumption will grow once the virus containment measures come to an end.

In addition, the move to reopen the economies is very important from a healthcare point of view – any sign of a second virus wave will hit global markets very hard.

Inventories Continue To Increase

U.S. Energy Information Administration has just reported that crude oil inventories increased by 15 million barrels, while gasoline inventories were up by 1 million barrels and distillate inventories increased by 7.9 million barrels.

The continued increase in inventories is not surprising given the lockdown measures that were implemented across the U.S., and the main question is if the country will have major storage problems in May.

Domestic oil production continued to decrease and fell from 12.3 million barrels per day (bpd) in the previous week to 12.2 million bpd. The decline in domestic production is very important as it helps improve the supply/demand balance.

For a few days, the price action in the oil market will likely depend more on sentiment rather than data. The reason for this is that there’s not enough data to evaluate the supply/demand balance in June, and traders will need more time and information to come to their conclusions. Meanwhile, traders and investors should expect major oil price volatility.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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