Oil prices are ticking up today on trader hopes that OPEC+ may address India’s demand destruction with supply policy amendments in its coming meeting.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the day's developments:
"News from India set off a loud alarm on trader floors this week and oil prices have taken a hit on expectations that oil demand will crash in a country that is among the commodity’s largest consumers globally.
If the grim trend continues, the oil demand loss India will experience could be the single largest reduction in absolute terms that any country has suffered since the beginning of the pandemic.
Covid-19 infections in India are already out of control and the country’s healthcare system is insufficient to handle the population’s needs, therefore things will likely get much worse before they get better, with severe consequences for all commodities including oil.
Some may wonder why oil prices are rising today. The explanation is that this week coincides with this month’s OPEC+ meeting.
The oil market has frequently been spoiled by OPEC+, as the alliance has stepped in several times since the start of the pandemic, to save prices when the demand outlook was worsening.
The technical committee that had forecasted a coming rise in global demand in the previous meeting, is now looking at India and other countries with concern.
The market boosted prices today as it expects that OPEC+ will address the developments in India and, since the country is among its major clients, it may reconsider its output policy.
Traders do not want to miss out on a potential bullish OPEC+ meeting so a limited optimism is reflected in prices. Should OPEC+ turn a blind eye to India though, the gains may quickly evaporate.
India’s condition is so troubling at the moment, that traders don’t really put much focus on other fundamentals.
The US and China are doing better and better and demand is ticking up, especially in road fuels, which is also supporting the market, but their positive outlook is already priced in.
A fine price boost could be expected when Europe finally opens up again for the summer season, as jet fuel and road fuel demand are both set to pick up to accommodate travellers."
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