Oil prices are just below yesterday’s levels as everyone waits to see how crude stocks will evolve and amid fears of demand destruction by Covid-19.
Rystad Energy’s Oil Markets Analyst, Louise Dickson, has commented on the morning's developments:
"The oil price is still stuck, nearly flat at the low 40s, anchored there until it is given a convincing reason to move in either direction.
Today’s trade on EIA US inventory news is a gamble. Most market participants, including Rystad (1.7 million barrel draw) estimate a draw, which could give confidence to the market.
However API institute industry data show yet again another rise in crude stocks, which is why prices are trading just below where they were in yesterday’s close.
Covid-19 cases in the US is of course another reason for concern, the critical situation in the country, and other nations, is what keeps prices below US$45 on the first place.
If crude stocks are growing now, while restrictions are loose, traders worry about what will happen to demand in the case serious lockdowns come back again. Stocks are already at quite high levels.
Else, yesterday, Canadian oil companies announced they would be restoring 20% of shut-in Canadian oil production (Rystad estimates Canadian shut-ins peaked at 1.3 million bpd in May, and that already 0.6 million bpd of these volumes will have returned by July). On the other side of supply, the outlook for Libya crude production is looking less and less tenable – National Oil Corp said production could decline to 650 000 bpd by 2022, compared to about 1.2 million bpd in production before the recent blockade, which sent crude output spiraling down to below 200 000 bpd.
Whereas supply and demand used to balance out at around 100 million bpd per year, now record shut-ins and Covid-19 demand destruction in July brings total liquids demand in July to 89 million bpd and total liquids supply at around 88 million bpd, hence a new “balance at the bottom” at US$40/bbl. The US, which has a plethora of clear transparent and consistent data – is a good bellwether to watch for the global oil market, and just yesterday, the EIA Short-Term Energy Outlook said it sees crude production on the decline through 2021 and spot prices capped below US$50/bbl. We are a bit more cautious in our optimism and only see a return to US$50 Brent in the second half of 2021, and this is excluding any second wave demand destruction."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/08072020/oil-ticks-down-on-crude-stocks-and-covid-19-fears/