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Oil declines on new Covid-19 restrictions

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Oilfield Technology,

Oil prices fell today on bearish Covid-19 news, but anticipation of the OPEC+ meeting and crude inventory draws still provide support.

Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez-Masiu, has commented on the markets:

"Oil prices are falling today but seeing the bigger picture, if the decline does not grow massively, they will close higher than they started this week, exhibiting surprising resilience amid deteriorating market conditions.

Today’s decline is no surprise, in the same way that new bearish Covid-19 news aren’t unexpected any more.

The pandemic’s second wave is here and the world is at a stage where new curfews are being re-imposed, effectively restricting traffic and with it demand for road fuels.

France is on full alert again, London enters another round of restrictions and caution has returned around the world.

Although we will not likely enter such deep lockdowns like in the pandemic’s first wave, we still see restrictions again, and they do have an effect in every aspect of our lives, including fuel consumption.

There is a big downside to this weekly price rise. It is the possibility that prices moved mostly due to the OPEC+ meeting and the anticipation of the market that the alliance might take further action to either address some of its members’ undercompliance or re-evaluate its plan to boost production again from January.

If these hopes prove futile then prices may be in danger again next week after the OPEC+ meeting.

Initial reporting shows that so far the alliance has not shortened much its total undercompliance since the summer and this is an issue. Few nations, if any would be willing to take an extra hit in their production, if such a move is needed, when their allies have not fully complied to their existing obligations.

Therefore once again we expect on Monday’s meeting some strong words on compensating for the undercompliance. What everybody is wondering is if there will be any action against the laggards this time or if the bashing will stay at a verbal level.

The only clear bright spot for the market this week was yesterday’s EIA report, which showed drawdowns all over. The administration reported that commercial crude inventories eased 3.8 million barrels, and hefty declines in the main products category, gasoline, and distillates.

Gasoline headed lower 1.6 million barrels, while distillates fell by a hefty 7.2 million barrels, the higher w/w decline since 2003.

The draws in product inventories were driven by both a sharp increase in end-user demand and a drop in crude runs. US refiners are trying hard to solve the oversupply in the distillates market while meeting higher gasoline demand. Last week the ratio of gasoline to distillate production hit the highest in more than a decade."

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