Oil is down by about 4% on the day currently
Oil opened with a modest gap lower, as price fell under $26 in the early stages of today before recovering some poise over the last few hours as the market keeps a more optimistic risk mood with coronavirus developments seeing a better turn over the weekend.
Despite the risk tango, oil prices will be largely driven by headlines and what the OPEC+ meeting – now on 9 April – will deliver later in the week. The market is hoping for some kind of substantial amount of output cuts, somewhere around the region of 10 mil bpd.
For now, that is still a hopeful scenario but one that still shouldn’t be ruled out.
If put together with improving coronavirus developments, it could prove to be a lethal combo for an epic short squeeze in oil prices.
However, any optimism on the virus front needs to be put into perspective as to how we got here in any case. It is all about lockdown and containment measures.
These still need to be somewhat in place to keep the improving trend running and it will take time before we see easing of these measures – potentially in May and more widespread normalcy perhaps in June?
Even so, consumer behaviour will remain cautious and most major economies will still be running well below normal capacity in the coming months.
That means the supply glut is here to stay. So, oil may get a boost from output cuts – which aren’t going to be enough – and better coronavirus developments, but downside pressure will still persist as stockpiles continue to build across the globe.
$30 on a further short squeeze seems entirely plausible but shorts remain attractive if buyers overreach towards the upside in this latest run.