Oil prices continued their decline on Monday, as the market is growing less and less confident that oil demand will recover as quickly as it hoped. The end of the US driving season and worrying indicators in the Middle East and Asia are fuelling the sentiment.
Rystad Energy’s daily market comment comes from Senior Oil Markets Analyst Paola Rodriguez-Masiu:
"For the oil market, September is the month of the delayed ‘summer blues’.
Traders had been happy to support prices throughout the last months, ignoring worrying signals that the oil demand’s recovery would be slowed. Yet the slowdown is now starting to be more evident than ever and these two first weeks of September are weeks of sobering up to the reality.
Following a week of losses, today oil prices continue the decline, mainly because of developments in the Middle East and Asia, and also on concerns that road fuel demand might dip in the US.
Starting with the US, worries about the health of road fuel demand intensified this morning, with Labor Day holiday marking the end of the summer driving season.
Meanwhile, there is concern in the country that Covid-19 infections will continue to grow till the end of the year, which by itself is a bearish sign for oil use.
Road fuels are the prime driver of the oil demand’s recovery and it was a road fuel come-back that supported oil prices on the first place after the first months of the Covid crisis.
The slump in oil prices was also fuelled by reports of larger-than-anticipated cuts in Saudi Arabia’s crude pricing to Asia. The decrease was interpreted by the markets as a sign that the demand recovery in the region home to the second and third largest oil consumers is running out of steam. More negative news came from the eastern hemisphere as customs in China, the bright spot of the oil market to the day, reported that crude imports fell in August for a second month amid brimming stockpiles and congestion at its main ports.
If China does not boost again its oil imports soon, this could be interpreted as a warning sign that even heavy industry-propelled economies, that traditionally come back more quickly than others in times of crisis, are feeling the strain.
The oil market sentiment has turned sour, and we don’t see oil prices bouncing back anywhere near to the $50 per barrel level anytime soon unless OPEC+ decides to deepen the current cuts. Although ideal, we find this scenario unlikely.
Instead, the alliance will likely focus on ensuring compliance with the implementation of the current agreed cuts, exerting maximum pressure on countries failing to comply. Which in itself is not an easy task either."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/07092020/oil-prices-feel-the-delayed-summer-blues/