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Oil rises on low supply confidence

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Oilfield Technology,

Oil prices gained on Tuesday, squeezing the last dollar cents from optimism the promised Saudi cut and the OPEC meeting created last week.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on today's gains:

"Oil prices today are defying demand concerns and extend their spree of gains since the OPEC meeting’s resolution last week.

Although there is a clear downside risk in increasing prices that much, traders are betting on expectations for continuous stock draws, seeing supply deficits coming and a lack of Saudi shipments going west.

One would think that the million-barrel daily cut that Saudi promised to add is already priced in but the market seems to think there’s more dollar cents to squeeze out of this.

In our view, the market now should stabilize if anything, rather than boost prices. Returning restrictions and concerns over increasing infections are curbing road fuel demand globally and in Europe in particular.

Meanwhile, a continuous price rise is an alarm clock for US shale, with the industry able to turn the production decline around under the current price environment.

OPEC’s intention was not to give the US oil industry a boost, so if shale production increases in the US it is interesting to see how the alliance will react in two months from now, when it hosts its next round of discussions for future policy.

Looking at demand trends, we wouldn’t be surprised to soon see the gains corrected a bit.

Prices don’t always move as a result of a clear valid reason and that is normal in a daily market of profit-aimed transactions. Traders gotta trade and at times gains or losses go a bit too far, like probably today, but that’s the nature of the game.

Nevertheless, API numbers are something the market will be looking at today, with another eye on new lockdown announcements around the world. If restrictions mount, prices can’t reasonably keep their current gains.

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