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Oil Bounces As Investors Bet On The Global Economy Slowly Reopening

Oil prices rose once again on April 30 as signs that the global economy is moving towards a slow reopening boost sentiment, and inventory data shows storage demand for the commodity rising slower than expected. West Texas Intermediate has rallied close to 14% on the day to trade at $17.43 barrel, as of 8:35 AM ET, while Brent crude, the international benchmark is up 12% at $25.38 a barrel, according to Markets Insider data.

Many large economies are moving to lift the most stringent of coronavirus lockdown measures. Several U.S. states are taking measures such as reopening non-essential stores, while some European countries are taking similar steps. This reopening has boosted sentiment, creating expectations that oil demand will likely increase in coming weeks.

Prices also rallied on signs that demand for storage of oil is coming off recent highs. A report from the U.S. Energy Information Administration April 29 showed inventories of oil rising by nine million barrels last week, significantly lower than the 10.6 million barrel increase forecast by analysts.

Neil Wilson, market analyst at Markets.com, said: “Oil continues to notch gains as the risk rally reflects hopes of the global economy opening up sooner, and after a smaller-than-feared build in U.S. crude inventories.”

Oil prices have experienced swings of both downward and upward volatility over the last month. U.S. oil prices turned negative for the first time in history last week, while Brent dropped to a more than two-decade low. The positive movement in oil prices comes despite a gloomy forecast by the International Energy Agency on April 30 that predicted global energy demand will slump seven times more than it did during the 2008 global financial crisis.

The International Energy Agency said on April 30 in a statement: “Energy demand will fall 6% in 2020—seven times the decline after the 2008 global financial crisis.” Dr. Fatih Birol, executive director of the IEA said: “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”

Analysts at MUFG said in a research note April 30 oil is entering the “inflection stage in the cycle”. “We expect the market to sternly test global storage capacity in the coming 2-3 weeks which will likely lead to significant volatility with more spikes to the downside to front-month oil prices. This will continue until we reach the equilibrium of supply equating demand, given storage and filling capacity constraints–as with nowhere to store the oil, supply has no other option but to be shut-in in-line with the expected demand losses.”

But MUFG predicts at this this inflection point that demand-supply fundamentals will balance and oil prices will bottom out.

On April 30, oil giant Shell slashed its dividend for the first time since the World War Two, reflecting the turbulent state of the industry. Source: MarketInsider, 04.30.2020

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