Oil prices finally put a halt on their continuous rise, as traders focused again on the worsening short-term oil demand.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on today's developments:
"It is true, vaccine news are positive and a price rise was natural in the past weeks. However, the bullish sentiment has driven price levels higher than where they normally should be, brushing off demand concerns.
Today the market corrected oil price levels, recognising the destruction in short-term oil demand that lockdowns are bringing.
Traders saw an opportunity and they capitalised on euphoria over the last few days, but when the positive vaccine news are digested and become yesterday’s story, one has to be blind to ignore what is currently happening in the market.
Oil prices today are justifiably falling, a definite price correction that even cancelled the otherwise bullish news coming from US crude stocks.
US stocks fell unexpectedly in the US, a development caused by higher refinery utilisation.
The devil is hidden in the details though and road fuel stocks rose, with gasoline building by over 2 million bpd.
Road fuels are the driver of oil demand recovery and things don’t look good at the moment. In Europe lockdowns are slashing demand again – but we will get to that more in detail in a press release later today.
What could drive bulls back to the arena is next week’s OPEC+ meeting. If the widely expected decision to maintain current production levels gets confirmed, then the development will bring some relief to the market and lift prices again.
Not that postponing the scheduled production increase is not already partly priced in, but confirming it will put the cherry on the price cake.
Overall, it is not a huge surprise that prices were high and needed to be corrected. It is a traders market after all and making money is the driver. People buy on bullish news, and sometimes they buy at higher prices than what the product deserves.
Then, when the ’Oops’ realisation sinks in, a correction naturally comes in the next trading session."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/26112020/oil-falls-as-bulls-bow-to-demand-reality/