Oil market downside looms amid 'humongous' pressures: BofA's Blanch

BofA commodities head on oil & gold

Speculation about oil producing countries capping oil production at January levels brought about a relief rally this week, but the oil market remains oversupplied and the downside still looms large, a top energy analyst told CNBC on Thursday..

Around the world, the crude glut is exacting a big toll on oil producers. This week, OPEC member Venezuela announced a hike in gasoline prices for the first time in 20 years, while Venezuela was among the oil ministers who considered freezing production at January levels.

"The level of distress across the energy producing community is humongous "Francisco Blanch, head of global commodities at Bank of America Merrill Lynch, told CNBC's "Power Lunch." on Thursday.

Oil prices seesawed on Thursday to settle up marginally higher at $30.77, as investors reacted to news that commercial crude inventories rose 2.1 million barrels from the previous week. Against that backdrop, U.S. oil and gas companies are also feeling the pain: A report from Standard & Poor's on Thursday said that nearly 20 oil and gas companies have defaulted thus far this year.

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Blanch told CNBC that U.S. shale is sensitive to prices, and production in the domestic shale patch has been on a steady decline for the past three quarters. In the same vein, an effort to cut production from OPEC is an "important sign" for a whipsawed market.

"I think we are starting to see a bottom on the market," he said, adding that demand is likely going to continue to pick up.

While lower oil prices have become the bane of oil producers both foreign and domestic, Blanch added that consumers are getting a spending boost from low energy prices—to the tune of trillions of dollars.

"We are seeing a $3 trillion dollars transfer a year from the hand of the producers to the hands of consumers," he said. "That cannot be a bad thing."