Rystad Energy: oil price correction may be around the corner

"Even though Friday is usually the day of risk-aversion, prices continue to bubble up towards US$60. Reasons to be bullish are there, they have been all week, but when the Brent price is just cents below the 60-dollar mark, sometimes the rise is a market will to see the a psychological ceiling breached.

Although oil storage draws and confidence on tight OPEC+ supplies for the nears future are pillars behind this week’s price train, one would expect their effect to be already priced-in since mid-week, yet the market still build gains on them.

Continuous storage draws is what bullish traders love to see, after a year of monstrous inventory builds, so once the trend is constant the market sees little reason to stop the price hype.

What is really helping the market today, and is a more valid reason for the price rise we see, once again comes from Saudi Arabia and its top firm, Aramco.

Prices are supported by Saudi Aramco’s announcement of official selling prices for March, with traders opening their eyes to a surprisingly large price rise to Europe.

The demand outlook for COVID-19-hit and margin-squeezed European refiners is fragile, so raising prices for crude sales to the continent may be a signal that Saudi Arabia is more confident in the demand outlook, which the market is interpreting positively.

In the US, there are positive indications for the market to trade on, the expected stimulus package and a boost in factory products demand, but due to the uncertainty of the former’s timing and the yet-to-be-felt effect of the latter we believe they are now serving as a reason to keep prices stable rather than lift them.

However, when the details of the stimulus package’s timing get finalised and the Republican-fought bill passes through Congress, the moment will be game-changing and will have a ‘real’ price effect.

For the moment, lockdowns are not to be forgotten in many regions of the world. Road and jet fuel demand are suffering as 2021 did not offer much relief yet from the 2020’s despair. And when demand is suffering, normally so do prices.

Many technical indicators are flashing red, so a price correction soon would not be unsurprising. What would trigger it is more the question, and for now a broader sell-off in the increasingly bubbly financial markets is probably the most likely candidate.

While such market corrections normally happen on Friday’s when trader take risk of their books, it remains to be seen if today is the exception to the rule."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/05022021/rystad-energy-oil-price-correction-may-be-around-the-corner/