Oil prices have risen as US crude inventories are believed to have fallen more than traders expected. However, more news that could move the market again could come from the OPEC+ meeting today.
Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez-Masiu, has commented on the morning's developments:
"Oil storage is a complex thing and yet again API data show that we are in for a surprising move of crude stocks, due to be announced later today from the EIA.
Quite often the draws or build-up are very different to what the market expects, and these are the Wednesdays with the biggest price moves.
If confirmed by the EIA, a draw of 8.3 million bbl is significant. The market did not expect that and it is the main reason that prices rose this morning, in an otherwise bearish day, on anticipation of the OPEC+ meeting.
OPEC+ managed to orchestrate the greatest “balancing act” ever seen in oil market history. But now, the alliance is ready to start concluding the show. Led by Saudi Arabia and Russia, OPEC+ is now set to reopen the crude taps, a justified move, as the market is getting closer to being rebalanced because lockdowns are lifted in most countries and demand normalises.
The final decision on whether the alliance will keep 9.7 million bpd off the market or taper the cuts to 7.7 million bbl will be reached on 15 July when the JMMC meets.
We anticipate the initial agreement will be honoured. Russian companies are reportedly already prepping to boost output next month and KSA has already set its shipping schedules for Aug-20 ahead of the meeting.
During 3Q20, global crude demand is expected to rebound by 7.1 million bpd compared to 2Q20, and thus we expect balances to show sizeable deficits during 3Q20, even as OPEC+ increases production by about 2 million bpd.
Our positive crude outlook is not without risk. The Americas region could throw a spanner in the rebalancing act as daily infections continue to rise and some states consider new restrictions.
The expected forecasted draws are at the mercy of the outcome of the Covid crisis and could be weighed down further by the prospect of Libya’s production coming back after a prolonged period of shut-downs.
For now, we believe that the oil market is heading to the right direction, with oil prices registering moderate gains.
But the price recovery is fragile and hinges not only upon avoiding a derailing of the demand recovery, but also OPEC+ adherence to quotas as they slowly ramp-up output in August."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/15072020/oil-gains-on-surprise-crude-draws-in-the-us/