Following Brent crude oil’s rebound above USD 85/bbl after the surprise voluntary production cuts announced by members of the OPEC+ group in early April, oil prices have again come under downward pressure and are now trading below USD 75/bbl. Weaker Chinese leading indicators have been mentioned as one factor weighing on prices. Sluggish Chinese waterborne crude imports (down around 1mbpd versus March) and higher OPEC+ crude exports in April (up around 200kbpd versus March) were also likely unsupportive. What might have intensified the downward move was the forced selling of futures contracts by financial institutions looking to protect against the downside risks of options they had sold to oil producers—similar to what happened in March. We can probably add other factors such as a lack of buyers wanting to add exposure to a volatile underlying and the sideways trend in oil inventories over recent weeks.

Despite these, we retain a positive outlook for oil prices. Flight activity has rebounded strongly this year, with activity around 2019 levels. Generally, we see oil demand holding up and look for even higher demand over the coming months. On the supply side, voluntary production cuts were implemented at the start of this month. The lower potential OPEC+ crude production and exports should help the oil market tighten, supporting our view that oil inventories will begin to decline and support prices.
Source: UBS