By Adedapo Adesanya
A double-barrelled problem of low demand and oversupply are set to plague the oil market this week again as Black April, the worst month for oil in 25 years, wraps up to welcome a fresh month that promises 10 percent cut off global crude production.
The double problem of low demand and oil glut has caused prices of the commodity to fall at the market as the world is running out of places to store excess supplies of crude due to the coronavirus-induced plunge in demand.
Last week saw one of the one of the most volatile periods for crude, with the United States futures, West Texas Intermediate (WTI), contract for May plunging below $0 for the first time ever. Prices fell in the negative territory for the first time to minus $37.63 per barrel.
The global benchmark, Brent Crude, was not exempted as it dropped to around $17 per barrel, a bearish level that has not been experienced in 20 years.
Global demand has collapsed by about 30 percent due to the pandemic, leaving more oil than can be stored and rising global inventories, especially in the US with the coronavirus pandemic weighing on consumption pressuring oil prices.
The market made recoveries late last week after US President Donald Trump pulled the oldest trick in the book, stoking tensions with rival, Iran. Traders lapped up at this and price moved up, but this is not enough as analysts view it as a short term promise.
President Trump instructed the US Navy to fire on any Iranian ships that harass it in the Gulf.
Over the weekend, in an effort to calm the situation, Iranian President, Mr Hassan Rouhani said the country was closely following United States activities, but would never initiate a conflict in the region.
However, for market hopefuls, as May draws closer, the first out of two months for cut, if more OPEC+ members announce early production cut, prices may make a positive turn and with tension between the US and Iran seen as a factor, prices may improve but it leaves long term worries like demand plunge and oversupply weakening the market.
The demand plunge, which has fallen as much as 30 percent following the COVID-19 situation, has contributed 80 percent to fall in prices of the commodity.
For this week, concerns about the collapse in demand because of travel restrictions to contain the coronavirus and a shortage of space to store oil are expected to shape outlook of the market.
There is, however, no reason to expect a repeat of what happened last week that saw US oil prices fall 306 percent.
Prices could continue to stabilize this week if more OPEC+ members announce early production cut that was agreed on April 12.
Also, an escalation of military activity in the Middle East will be help turn things around.
However, an announcement of output cut by US producers that has been debated is believed could trigger a steep short-covering rally.
As at the time of this report, the bears are dominating with Brent crude down at $20.90 per barrel while the WTI was down at $14.79 per barrel.
