“a week after the biggest deal in oil history was agreed, the oil price has eased off and the contango spread in crude futures is wider than before the deal was signed. The markets seem underwhelmed. However, this should not detract from the scale of the agreement. No matter what the baseline, removing 9.7 million b/d for May and June, followed up a deep 7.7 million b/d cut for the balance of the year and restrictions of 5.8 million b/d until April 2022, is unprecedented. To add to this, further cuts, be it State imposed or through economic declines from the US, Canada, Brazil and potentially Norway, could further reduce supply by 3-4 million b/d. Further action by key oil consumers to increase crude purchases for their strategic petroleum reserves (SPRs) will also have an effect. Nevertheless, given the current demand destruction, the fact remains that these worldwide cuts are simply not enough”.
“According to the IEA, global oil demand is estimated to have fallen by 29 million b/d in April, and 26 million b/d for May, reducing demand to levels not seen in 25 years. A huge stock build is inevitable over the coming quarter and despite more storage capacity being made available via SPRs, floating storage will be inevitable. This floating storage demand is likely to be the main pillar of support for the tanker market once OPEC+ cuts are felt by the market. At the time of writing, calculations show that the contango in ICE Brent supports 3 months storage at $138,000/day and 6 months at $89,000/day, before any profit margin for the trader is accounted for. VLCC spot rates currently stand at $165,000/day”, Gibson said.