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Mild losses for oil price as renewed outbreaks cause caution

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Oilfield Technology,

Oil prices started the week with mild losses, as news about renewed outbreak pockets around the world alarmed traders to be cautious on how quickly demand can rebound.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, made the following comments:

"Oil prices started the week on a pessimistic note this morning. News about small renewed coronavirus outbreak pockets from China, South Korea and Germany over the weekend are denting optimism in the demand recovery by inducing a sense of risk in governments’ reopening plans across the world.

As a result, traders stepped back from last week’s enthusiasm, contemplating the possibility of a second wave of the epidemic, which, if realised, could drive demand lower than what the market hopes and expects for the second half of 2020.

Also, despite the production curtailments that commenced this month, traders start to realise that the size of the supply-demand imbalance leaves little room for optimism. Storages in the US continue to fill up with crude and we are coming closer to tank tops by the day.

Adding to the pessimism, India’s official monthly government reported oil demand data this morning suggested Indian oil demand dropped 46% from a year earlier during April. Indian reported jet fuel demand was down more than 90% y/y and road fuel demand (diesel/gasoline) down 55/60% for April, reaffirming our estimates about the depths of the global demand collapse we are now gradually recovering from.

The world expects a recovery in the second half of the year but there are so many things that can go wrong in the meanwhile. If the new reported outbreaks in Asia and Europe grow in size, a demand effect is implied and that will of course roll over to prices.

However, as things are at the moment, we believe the worst has passed for oil demand, assuming no second wave of lockdown measures.

Indications of renewed coronavirus outbreaks though, did bring mildly cold shivers to traders today."

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