Oil falls as Covid-19 puts demand on hold while supply keeps on calling
Published by Nicholas Woodroof,
Editor
Oilfield Technology,
Oil prices fell on Tuesday on concerns that a rise in Covid-19 infections globally will halt oil demand, leaving the increasing supply from August unused. Other positive indicators were not enough to keep yesterday’s gains.
Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez Masiu, has commented on the morning's developments:
"August will be a month of some price volatility. With demand recovery stalling for a while amid Covid-19’s resurgence, supply indications will swing oil trading from gains to losses and back.
What if prices rose yesterday on better-than-expected manufacturing data in China. Single pieces of positive news are not able to outrace the wider trend. And that is a halt in oil demand recovery, as some restrictions return globally.
Tuesday’s oil prices are falling as news from Asia and Europe are adding up concerns that the infection crisis may now not be just limited to the US and Brazil, but also to the rest of the world via a second wave.
Populous cities across Eastern Asia and Australia are putting up new restrictions amid a surge in infections. The cruise ship industry’s oil demand is also expected to take a hit, with the first such signs coming from Norway.
In the coming months, we anticipate global oil demand recovery to continue to flatten at levels just north of 90 million bpd between August and October, before potentially reaching 94.5 million bpd by December 2020.
Our analysis of real time road traffic and aviation activity data continue to support our “nowcasting” that most regions fail to show any meaningful pick-up in activity yet, with the exception for the growing number of domestic flights in most regions. Global road traffic still hovered 10-15% below 2019 levels last week and has actually declined in key Western European countries in recent weeks. In the 9 million bpd US gasoline market, US road traffic activity flattened out at the end of June but since has not demonstrated a robust rebound.
Currently, the supply side has limited surprises to offer unless OPEC+ completely changes course, which doesn’t seem likely except if prices were to drop to intolerably low levels in the eyes of Riyadh, perhaps to the low 30s.
Traders will have their eyes on how balances are affected this month and when the first signs of the surplus production start to roll in (coming US stock numbers for last week will still not show this) then we will see if the current price levels are sustainable or if a correction is around the corner."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/04082020/oil-falls-as-covid-19-puts-demand-on-hold-while-supply-keeps-on-calling/
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