WTI remains better bid in early Asia, targets $16 level

• Price of oil on the up, recovering from the May contract blunder.
• Continued signs of supply cutbacks should have a positive effect on prices in the industry.
• However, ETFs shuffle their holdings, in an attempt to protect themselves against implications another collapse.

Oil prices rallied amid signs of improving demand. The price of a barrel of WTI has been toying with the late $15 handle since rallying from the depths of $10 a day earlier and momentarily breach the $16 figure. At the time of writing, WTI trades at $15.80, +3.49% and has travelled between a low of $15.36 to a high of $15.96.

In energy markets, the left tail is shrinking, analysts at TD Securities explained, referring to how an OPEC+ output curtailment is set to officially begin in just a few days:

"An OPEC+ output curtailment is set to officially begin in just a few days while market forces, such as persistently low prices and storage constraints, are at work to ultimately drive non-OPEC supply significantly lower."

Meanwhile, we have seen US gasoline stocks falling by 3.67mbbl last week, according to EIA while weekly gasoline supplied, an indicator of demand, rose by 549kb/d, the most since May 2019, according to analysts at ANZ Bank.

"The markets even took a glass half full approach on the crude oil inventories, which rose a smaller than expected 8.99mbbl. At Cushing, the delivery point for futures saw a 3.64mbbl build."

Signs of supply cutbacks to have a positive effect on prices

As we move forward, continued signs of supply cutbacks will no doubt have a positive effect on prices in the industry. In the latest development, we heard that Norway will cut production. More on that here: Norway's Oil Ministry: The country will cut oil output. Also, Russian Energy Minister, Alexander Novak, stated that its oil companies are on the verge to cut output by about 19% from February levels. Also, Nigeria will ship its lowest volume of crude since 2016 in May and June.

"An acute fear of seeing negative oil prices again has driven index providers and ETFs to shuffle their holdings, in an attempt to protect themselves against the implications of this possibility, which has mitigated the risk of a forced liquidation," analysts at ANZ Bank explained:

 In this context, while we anticipate a long road to recovery for crude prices, the left tail may have narrowed sufficiently for market participants to begin eyeing opportunities. CTAs remain positioned for further downside, and we do not expect significant flow from this group of participants.

Oil levels