Oil prices declined today as the market is correcting the exaggerated price levels reached in yesterday’s session. Meanwhile, Covid-19 demand concerns and US supply return.
Rystad Energy’s daily market comment comes from its Head of Oil Markets Bjornar Tonhaugen:
"Crude oil inventory levels in the US came as a surprise to traders and, on the back of hurricane-affected supply cuts, allowed prices to rise to levels out of proportion.
The rise was justified but as usual in a commodity market, the hype led prices to levels that ended up a bit higher than they should.
This morning traders found a good opportunity to cash-in, as they know that the return of US supply and the overall Covid-19 uncertainty do not justify both WTI and Brent staying above US$40 at the moment.
Wednesday’s gains may prove short-lived as the trend for production is upwards once Sally has dissipated and shale is due for short term growth as shut-in production is being brought back.
The decline in prices is also correlated with the Covid-19 risk casting a shadow over financial markets.
The Fed’s muted view and communication about the economic outlook last night is suggesting interest rates will stay near zero for the next three years to fight deflation and unemployment due to the Covid-19-induced mega-recession.
The dollar is strengthening, equity markets are down and oil prices too.
Going forward, the oil market is back to focusing on today’s main event – the JMMC monthly status meeting with OPEC+ ministers.
The compliance in August was strong, but expect focus to return to the fact that laggards such as Iraq will fail to compensate in September for lack of cuts earlier this summer.
The bigger concern though is the rising Covid cases in large oil consuming countries such as India, which reported a record amount of new cases today.
Mission is far from accomplished by OPEC+ and the need for deeper cuts or reigning in sub-compliers to avoid global stock builds returning is overarching. The market is fully aware of the strenuous situation in the short term, hence sending prices a bit down today."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/17092020/oil-falls-as-market-corrects-boosted-price-levels/