The physical crude oil market was indeed boosted by the Organization of the Petroleum Exporting Countries (OPEC) and its allies and North American oil-producing countries. Just a few weeks ago, the prices of some grades of physical oil were close to zero. But as the world begins to relax the blockade policy implemented to stop the spread of the epidemic, the recovery of oil demand will still be slow and cautious. China sucker rod supplier shares with you.
Before the refinery resumes its continued demand for crude oil, the world first needs to release huge stocks of crude oil and oil products.
A European trader said: "Because spot crude oil is stored or floating at sea, the physical market tends to be tight. Now sellers have become dominant."
Due to the inability to sell crude oil contracts and the market showing deep positive price spreads, trading companies have been searching for onshore and floating oil storage space worldwide. The market structure of a positive price difference means that the current price is lower than the price of a few months later. This structure can be profited by saving the oil now and letting it go for future price increases.
Even though the market shows signs of recovery, many people still hedge floating oil reserves for about six months to a year, and there is now little reason to sell oil. Some refined oil products also exist at sea, but more are stored in onshore oil storage tanks with lower costs. Moreover, although the positive price gap has narrowed significantly, it has not disappeared.
Whether you can profit from floating oil storage depends on the duration of the storage contract, which means that traders may have hedged for this period of time. Traders will not release oil until the contract ends, the market spread structure is flat, or the spread is reversed.
Traders at the refinery warned that rising oil prices may be short-lived because higher prices may scare them away.
Eugene Lindell, a senior analyst at JBC Energy, said: "From May to now, the situation in terms of refining profit margins is worse than that in the first two weeks of April, when crude oil was at a low point."
He said: "The sharp increase in demand for refined oil does not mean that the demand for crude oil is also the same. We are cautious about this kind of rebound. The demand for crude oil will only increase by 2 million barrels per day. The price difference has risen, but it has risen from a lower level. "
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