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Oil prices dip on US crude stocks build-up, maintaining bearish sentiment

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Oilfield Technology,

Oil prices are losing ground again on indications that US crude oil inventories rose last week, maintaining the bearish price correction that September has introduced.

Rystad Energy’s daily market comment comes from its Head of Oil Markets Bjornar Tonhaugen:

"The long overdue bearish correction that September finally brought upon oil prices is not one to brush off within days.

After a shock decline earlier this week, prices ticked up a bit yesterday but don’t expect them to quickly blossom further.

Today prices are declining again, but so far Brent is still hovering just above the psychologically important US$40-level.

Added to the Covid-19 expansion, the lower oil pricing in the Middle East and the overall concern about the recovery of oil demand, came the API numbers last night, the effect of which we see today in the market.

In the last two months the oil market allowed prices to rise, drawing some confidence on the crude oil inventory levels in the US which were declining.

Now this pillar of confidence is also cracking as API numbers show a surprise build in crude stocks which, if confirmed by the official statistics, would be the first after several weeks. Yet gasoline stocks declined, a positive development for prices, but it could be associated with the Labor Day holiday in the US.

The increase of US oil inventories is having a bearish effect on prices today. And traders are worrying even more for what’s coming, as OPEC+ and other countries have beefed up the supply side of the balances.

Looking more closely at demand, the oil-price recovery is still in the hands of the coronavirus-hit demand recovery, and also partly in the hands of OPEC+ cut compliance.

The market has gotten increasingly concerned the stock draws we have seen since June may come to a halt as demand forecast are being revised down.

However, real-time road traffic data suggests the trend during the first nine days of September is positive for road travel levels globally, especially in the large European countries, North America and even China.

Unfortunately, aviation activity after the slight August vacation boost, is going the opposite way, seemingly turning a corner, with only Russian flight numbers among the major regions showing something close to normal levels.

Globally, air travel has only recuperated up to 55% of last year’s level and seems to be dipping again globally.

Bring in OPEC+ cut tapering to the mix and no wonder the crude market is a bit shaky while the Covid-19 cases continue to rise.

Overall, prices are where they should be, taking into account the pandemic’s development. The levels of the last two months were a result of the market underestimating the market dynamics.

Oil demand needs to be healthy to justify a return to price normality and at the moment it has just exited the life-support room."

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