Oil prices rose on Thursday as a weaker dollar helped oil purchases, but gains remained limited amid Covid-19 infection news and inventory build concerns.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the price rise:
"Oil prices are higher this morning shrugging off discomforting news for US-China relations, a bearish US inventory report from yesterday and a fresh record new cases in India of 45 600.
Possibly the most bearish signal the market is shrugging off is the dip in US refinery throughput last week. The actual demand for crude oil from the world’s largest consumer, going into the peak of the refining season, dipped for the second week in a row led by the East and West Coast refineries.
Moreover, the trend for Covid-19 cases will likely result in downwards revisions in demand growth forecast from key market observers soon, including ourselves and the agencies, especially for 4Q20, we believe.
This may come back to haunt the bulls sooner rather than later as expectations are adjusted for the worse, which will naturally affect prices as we go forward.
In the meantime, ignoring bearish indicators is a signal of strength for the oil price, but an effect that is also caused by a weak dollar, which usually boosts purchases of oil for industrial use.
However, a price move caused by currency rate changes, does not have a lasting effect and the dollar-related gains are expected to be limited to today only.
As mentioned other indicators would normally point to a weakening of the oil price and the market may turn eyes there after today’s purchase spree, except of course if the dollar devaluates more.
In other news, there is plenty of uncertainty in the market about how the most important oil demand segment will move, that is road fuels. Gasoline, on whose demand rise oil has built its gains lately, is at serious risk as Covid-19 continues to expand in key markets such as the US and India.
The spread raises the question: How long will gasoline demand be able to hold it current levels? It remains to be seen and it will also be a matter of policy. If lockdowns come back, sorry to say, but things will look a bit grimmer for oil."