Oil prices gain on stock build relief - Rystad Energy comments

As the market is today, in a trader’s mind the problem is the supply surplus. What does that cause? Stockpiling. And what happened yesterday? In an unexpected turn of events, US onshore storage filling levels seem to have fallen for the first time since January. No wonder prices are ticking up today.

Traders were wowed by the storage level news, these were not expected by anyone in the market. Floating storage has helped in providing this relief. However we do not believe that storage is on its way to recover healthier, lower levels yet.

The supply surplus has not gone away because of the storage levels losing a few thousand barrels this week. The market has not balanced yet and it will take some time for this to happen.

The devil is in the details as usual. The crude draw was not fed by the most yearned pickup in refinery demand, but rather came despite it. In fact, refinery crude intake reversed the gains of previous weeks by dropping nearly 600,000 bpd to 12.4 million bpd, a new low for 2020, and the weakest since 2008. The retreat in refinery activity not only revives lingering concerns over the pace of the demand recovery but also left the market wondering what was the driver behind such an unexpected draw.

Oil can certainly be transferred. As the DOE reports a draw in onshore inventories, satellite data indicates that floating storage increased by 3.5 million barrels to 8.9 million barrels just in the Gulf Coast area, clearly fueled by exports reaching a new-high since mid-March.

In addition, the number of tankers waiting to unladen at all ports in the US continues to increase, keeping in check the volumes that reach dry land. Crude draws in onshore facilities driven by weak imports and strong exports fail to meaningfully alter the US oversupply picture, and that is what the market will soon price in, despite the initial enthusiasm.

Moving oil to offshore storage, which has limitations, instead of onshore is not a long term solution and the markets will soon understand this. Refinery demand is the key metric that needs to picks up in order to have a justified price recovery, as this will signal a demand boost from the real consumer market.

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