The crude-oil market is still coming back from the coronavirus sell-off as Libyan exports continue to zap global supply, and Venezuelan exports will stop moving as the U.S. hits Russia’s Rosneft trading unit with sanctions. Even a significant 4.36 million barrel increase in crude supply as reported by the American Petroleum Institute (API), could not stop the market in part because the trade was concerned about a more significant than expected 2.67 million barrel drop in gasoline supply as well as a 2.63 million barrel drop in distillates. Still today, we may see headwinds from reports that Mexico is getting ready to but on the “big hedge” trying to lock in these prices. Maybe they should wait because everything but the impact from the coronavirus is starting to favor the bulls.

Despite people throwing out loose terms like a “glut in supply,” the reality is that global oil supply is still tight despite the fall out from the coronavirus. U.S. supply last week was 2% below the five-year average. Even if the Energy Information Administration (EIA) today in its weekly report matches the EIA, we are still going to see supply below average for this time of year. Shale growth is disappointing. The EIA lowered shale growth to only 18,000 barrels per day (bpd) in March.

It is not just the U.S.. Saudi Arabia’s crude stockpiles fell by 11.8 million barrels in December, and EU stocks are also below average, despite the demand destruction from coronavirus. The loss of Libyan oil exports is keeping us in balance. Chinese stimulus is also bullish down the road and we will see an oil demand surge when the virus starts to decrease. Hopefully that will be sooner than later.

Reuters John Kemp reports that Brent‘s six-month calendar spread has strengthened to $1.10 backwardation as traders anticipate a severe but short-lived downturn in consumption owing to coronavirus. The spread is up from a rec Jan. 20 before the outbreak started to cause concern about a global slowdown: ent low of $1.32 contango on Feb. 10, but still far below the recent high of $4.00 backwardation on.

The “big hedge” could slow oil’s sharp rise. Bloomberg News reports that, “Mexico plans to lock in prices for the country’s crude output for next year, continuing the world’s most substantial sovereign oil hedge, Finance Minister Arturo Herrera said. Herrera said in an interview on Monday that “of course” the oil hedge will continue, but that Mexico needs to keep details of the trade private to prevent the market from front-running the transaction. The Finance Ministry, or Hacienda, a hedge is considered one of Wall Street’s most secretive. Historically, the ministry buys put options — contracts that give it the right to sell crude at a predetermined future price — from a small group of investment banks and oil firms.”

We said that oil was probably bottoming last week, assuming there were no bad headlines. Seasonally, gasoline is on track for an above-average year as a strong U.S. economy and relatively tight supply, not to mention refining issues, is giving us support.

Natural gas went to the Bollinger(R) band and is trying to decide whether it wants to go higher deceivably or fall back. Today’s report may be the breaking point for this recovery rally. We expect a 150 draw.