Oil prices are seeing modest gains today as surprisingly high oil stock draws are expected in the US, but the rise is capped by concerns over a coming imbalance from August.
Bjornar Tonhaugen, Rystad Energy’s Head of Oil Markets, has commented on the morning's developments:
"It’s the usual Tuesday news that move the market today, the API institute projection.
The suggested draws are larger than the market expected and that is of course a bullish price mover.
A relief of 6.8 million barrels could normally help prices rise even further, but concerns over a new supply glut coming from August are capping gains.
Traders show caution as Covid-19 infections are continuing to surge globally, with even European countries that thought they had the virus under control now showing worrying numbers of a rise in new cases.
Under these circumstances the demand recovery that the market hoped for is at least muted. Supply isn’t though and 2 million bpd are coming back to the market from OPEC+ in a few days.
The return of OPEC+’s curtailed production and of some of the shut-in output of other non-members is set to create a surplus again that will add about 170 million barrels of stocks globally over 4 months, starting August.
Global stocks are already at high levels, so a relief now, despite being larger than what the market expected, is a drop in the ocean of the builds that seem to be coming.
So don’t be fooled by today’s price gains, they may be cancelled as soon as production exceeds demand, which is around the corner, and as this is expected to last for some time, traders will race to price it in.
Today’s trade may end in gains, but keep a cautious eye on infections, especially in Europe. US, South America’s and Asia’s numbers are known – and worrying – but Europe was thought to have contained the pandemic. Rising infections show that easing the lockdowns and scrapping travel restrictions has its downside. How big is the European downside will properly manifest in the rest of the summer. These numbers from the ‘example continent’ may be very important to predict how the situation may develop globally."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/29072020/oil-rises-on-us-stocks-relief-but-concerns-remain/