Why This Oil Rally Won't Last
Oil prices have rallied as traders believe the depths of demand destruction may be coming to an end with economies beginning to reopen. But some analysts are warning that the oil price rally may be premature.
WTI prices have doubled from to in a little over a week. There is evidence that demand has bottomed out and has begun to rise from recent lows. U.S. gasoline demand has ticked up for two consecutive weeks, rising from 5.31 million barrels per day (mb/d) in mid-April to 6.66 mb/d on May 1.
On the supply side, shut ins plus the OPEC+ deal have taken enormous volumes off of the market. U.S. oil production has declined by 1.1 mb/d since the end of March, dipping below 12 mb/d at the start of May.
“While it was still at rock bottom only two weeks ago, with everyone talking about the negative WTI prices and overflowing stocks, the optimism can now be sensed everywhere,” Commerzbank wrote in a note on Wednesday.