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Global Supply/Demand Imbalance Cut in Half for May as Storage Space Remains Tight

Energy research firm Rystad Energy said the global imbalance between oil supply and demand, which has increased oversupply to 26.4 million B/D in April, is set to fall by half to 13.6 million B/D in May and even further to 6.1 million B/D in June.

Even with the drop, the growth in inventory will still overwhelm remaining global storage, which is about 90% full and expected to fill in weeks.

With the imbalance between supply and demand set to fall, Rystad added that global supply is expected to fall to 92.8 million B/D in May, compared with 98.3 million bpd in April. A further decline to 91.1 million B/D is expected in June, the lowest level in 2020 unless further production cuts are announced. Output is expected to rebound in July.

Four-hundred-million bbl of available global crude storage remains, according to the firm, and crude stocks are forecast to build by 13.6 million B/D on average in May. Demand is estimated to reach its lowest point at 71.8 million B/D in April before rising to 79.2 million B/D in May, and increase further to 85.1 million B/D in June as governments ease COVID-19-related restrictions and industrial activity restarts.

Until the demand-supply gap becomes more balanced by additional shut-ins (possibly even within OPEC+ countries), Rystad said further downward pressure on oil price is likely. If adequate levels of production are not shuttered by 19 May—the expiration of the WTI June 2020 contract—the potential remains for another price collapse for WTI crude prices.

A price recovery is possible as early as June, though with risk for a tight market in 2022 and prices much higher than pre-crisis levels. Such an upswing and recovery would be facilitated by demand moving above pre-COVID-19 levels in 2022, ongoing OPEC+ cuts, and a loss of supply capacity in both US shale and long-cycled global production.

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