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Oil recovers gains as US crude stocks relief reassures traders

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Oilfield Technology,

Oil prices rose this morning, reversing earlier losses, as a crude stockpile relief in the US, still inspires market confidence.

Louise Dickson, Rystad Energy's Oil Markets Analyst, has commented on the price rises:

"After an initial reckoning this morning, weighting concerns over new Covid-19 infections and restrictions in the US, oil prices recovered early losses and swung to gains.

Yesterday’s crude stockpile relief news in the US was not a one-off event that traders forgot. A huge drop in inventories, much higher than most of the market expected, is clearly a booster factor.

Typically a drop in inventories signals a positive development in demand or a negative move in supply. But as supply is fairly stable, the market assumes demand stands strong, despite the new Covid-19 infections and restrictions.

News of new lockdowns in California would have depressed the market any other day, but yesterday’s EIA inventory report balanced the bad news and prevailed.

Floating oil storage in tankers offshore is also lower than it used to be, with more of the vessels now returning to their initial purpose, that is transport rather than store. Offloading crude oil from sea storage also helped in the onshore stocks build in previous weeks.

How new lockdowns affect demand now remains to be seen and all eyes are in the US and South America at the moment.

Last but not least, the next OPEC+ meeting is not far away now and the market is waiting to see how laggard members perform, while there is also trust on the group that if the situation requires it may again take action and extend deep production cuts further this year.

But such meetings are always in for surprises and as member states look forward to a production level normality again, brace for it and take a break from the beach on that day this summer. OPEC+ talks are never boring."

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