Global Oil Glut Set to Halve in May

The global imbalance between oil supply and demand is set to halve to 13.6 million barrels per day (bpd) in May.

That’s according to a new Rystad Energy analysis, which predicted a further fall to 6.1 million bpd in June. Rystad warned, however, that despite the improvement, the stock build will still overwhelm remaining global storage, which it says will fill “in weeks”.

“While this may seem like a drastic improvement from April, the oil market is not magically fixed,” Rystad Energy Oil Market Analyst Louise Dickson said in a company statement.

“The storage issue still looms large and will spill over onto trading floors, as buyers are left with crude they cannot physically place, and into the boardrooms of oil companies which must make very costly but necessary decisions to scale back production and give the market some breathing space,” Dickson added.

According to Rystad, if sufficient production isn’t shuttered by May 19 - the expiration of the WTI June 2020 contract - then the potential remains for another “nightmare WTI price collapse”, which it does not rule out spreading to other crude blends.

“However, given that most oil futures outside of WTI do not require the buyer to physically take oil delivery, and instead have cash settlement options, the destruction to other benchmarks should be tamer,” Rystad stated.

Rystad outlined that it expects the oil price bottom is “in front of us rather than behind us” but added that it still believes in an oil price recovery, “possibly starting as early as June”. Rystad also highlighted that it sees a risk for a tight market in 2022 with prices “much higher than pre-crisis levels”.

“This will be facilitated by a recovery in demand to above pre-Covid-19 levels in 2022, ongoing OPEC+ cuts, and a loss of supply capacity in both U.S. shale and long-cycled global production,” Rystad stated.

To contact the author, email andreas.exarheas@rigzone.com