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Oil dips as Covid-19 surge threatens road fuel demand

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Oilfield Technology,

Oil prices have fallen as a surge of Covid-19 cases in the US and other key markets around the world throw doubts over gasoline demand and for how long it can keep its recovered levels.

Rystad Energy’s Oil Markets Analyst, Louise Dickson, has commented on the price fall:

"Just when the market steadied after Wednesday’s long-awaited OPEC+ meeting, the Covid-19 pandemic quickly returned to the stage, being the market mover once again.

Producers can decide what they may about the speed of bringing curtailed production back online, but whatever OPEC+ does could be futile if the needed demand doesn’t follow.

With Covid-19 setting new grim records in daily new infections in the US, and expanding in other key markets in the Americas and Asia, the demand section most affected is road fuels.

As traders come to realise that road fuel demand is in danger, prices naturally took a small hit today.

Oil demand appears to be in a soft chokehold as the US is ensnared in what appears to be a second wave of the Covid-19 epidemic.

States are either hitting pause or in some cases reversing re-opening plans, and it is showing up in our real time road data. In the last week and a half, we have seen road congestion in the US dip by about 2.5%.

This is calculated by taking the 7-day moving average of traffic reduction versus normal levels against the mean traffic during the same weekday in the same month for 2019.

Western Europe and Australia have also seen slight declines in road traffic levels, whereas most parts of Asia are still seeing a rebound in road traffic.

Less transport of people and cargo on the roads translates into mounting pressure for gasoline demand specifically.

While up until this week we saw a general recovery trend in road congestion in the US, the rather significant decline – which could be tied to reasons such as persistent unemployment, continued work from home regimes, and a move towards more online services – give a reason for a price-pause.

With the OPEC+ meeting now out of the way and with more production coming online from August, a dip in demand can really play a pivotal role in pushing recovering prices back to lower levels.

It all depends on what measures countries and states are taking to reduce their infections. But at this stage it looks like a quick demand recovery this year is not really on the table any more, and with it a quick price recovery."

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