Oil price surged more than 20% in April and more than 70% since its bottom in January, but now bulls are facing critical challenge in pushing prices higher. Bulls will have to tolerate higher supply in the spot market, which would put pressure on spot prices.

In our analysis published last week, we saw significant supply/demand gap, still existing in the market, despite slowdown in production in North America. As of first quarter, Supply is still in excess of 1.5 million barrels/day. And latest OPEC report indicate, it might once again start deteriorating in second quarter.

In April, OPEC production rose by 484,000 barrels per day to 33.21 million barrels per day, biggest in 27 years. Large chunk of the rise came from Iran, which increased production by 300,000 barrels/day to 3.5 million barrels per day, highest since 2011, pre-sanctions era.

Iran will try to place as much barrels it can in the market, through discounts if necessary and higher price has given them just the leverage required. This will inevitably put downside pressure on prices in physical market.

So, either we are looking into retreat of oil bulls or they stick around pushing oil contango higher.

WTI is currently trading at $45.6/barrel and Brent at $1.2/barrel premium.