Oil Price Surge Driven Partly By Positive Coronavirus Vaccine News, Says Strategist

Oil prices rebounded Wednesday, after the market received a boost from surging stocks amid renewed hopes for a drug to fight coronavirus.

The price of oil plummeted to historic lows earlier this month as the coronavirus pandemic crushed demand. On Wednesday, WTI crude oil was trading at $16 a barrel (June contract), up 25.69%.

“Crude oil has stabilized following the carnage that followed the collapse and move to negative prices of the now expired May contract,” Ole Hansen, head of commodity strategy at Saxo Bank, says in a note.

The short-term fundamental outlook remains very disturbing given the potential need for more than 15 million barrels a day of forced shut-ins from producers around the world, the strategist says. 

Oil's Recovery Drivers

The recovery led by WTI crude was driven by hopes that the Energy Information Administration's weekly inventory report would show signs of a bottom in demand, Hansen says. 

"In addition, the market has just received an additional boost from surging stocks amid renewed hopes for a drug to fight the coronavirus."

Once the world runs out of facilities to store unwanted crude oil, production needs to equal demand, and this can only be achieved by a major cut in production, the strategist says. It won't necessarily come from the high cost producers, but primarily from those who don't have a buyer for their oil, he says. 

"Norwegian-based Rystad Energy in their latest report said they expect demand to drop by 28 million barrels per day this month; by 21 million next month; and by 16 million in June. Goldman Sachs in another report saw global storage facilities filling up within the next month."

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