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Oil falls as Covid-19 casts shadow over future demand

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Oilfield Technology,

Oil prices fell today as the Covid-19 pandemic continues to expand, threatening the future of oil demand, in a market that is slowly trying to recover production levels.

Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the morning's developments:

"With OPEC+ signalling that more surprises are not to be expected on the oil supply side, and with production now set to rise as initially planned by the group, traders have realistically only two hard sets of information to trade on.

These are the weekly level of oil stocks and how Covid-19 expands globally, with the latter being in direct correlation with how oil demand is expected in the future.

Since the OPEC+ meeting last week, we have said that prices around the 40-dollar mark are to be expected for the remainder of the year, with a potential downside depending on how the pandemic affects key markets.

It may be repetitive, and surely nothing the market hears for first time, but prices again declined today because of the continuous sharp rise of Covid-19 cases globally and primarily in the US.

Countries that are hit hard, like Brazil and the US, now seem to see the virus’ expansion more seriously. Daily reported infection records have been replaced by new highs frequently this month and don’t seem to decelerate.

Meanwhile across the Atlantic populous countries like India are also seeing cases spiking.

The market is becoming concerned that while producers have the willingness to return to a more normalized situation, bringing more curtailed output online, demand will not be there to sufficiently follow.

If road transport decreases with new lockdowns then road fuels are in serious risk again, and it’s road fuels that take the biggest hit from the pandemic.

Traders can’t see Covid-19 expanding at such rates and pretend it didn’t happen. A price reaction is justified and the decline today is expected to stay until some good news change the sentiment.

Eyes are now on the US weekly oil stocks and how they performed after a week of record Covid-19 cases in the country.

Also don’t forget the shut-in production that is silently coming back. It could be another bearish factor in the equation.

As things stand, prices are not likely to produce any sizeable gains very soon, until a signal that the pandemic slows down. And even though in Europe the virus has been cornered, the Americas and some Asian states have still long way to go."

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