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Oil prices decline as a careful market waits for concrete positive news

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Oilfield Technology,

Oil prices declined this morning as traders continue to keep them in manageable levels, on anticipation of more bullish news and with a wary eye on how Covid-19 evolves.

Rystad Energy’s Oil Markets Analyst, Louise Dickson, has commented on the morning's losses:

"Oil prices are still looking for signs of life and since the Brent rally past US$45 on the OPEC+ cut optimism, so far the contract has not found any reason to justify leaving its comfy US$40 – 41 perch. Positive economic data – ranging from positive European economic sentiment, to Chinese industrial activity, to a so-far resilient US stock market – all helped Brent stay comfortably at around US$41/bbl, but couldn’t push it any higher. The relatively promising economic data cannot shake off the fear of a second wave of the Covid-19, especially in the US, which is again imposing social distancing restrictions in big economic states like California, Texas, and Florida. Everyone know what the pandemic has brought in the first part of the year, we all have seen the demand curve plunging to market panic levels, and so the fear of a second wave remains, not allowing – for now – prices to continue sustainable gains.

While the demand picture is weighed down by a second wave of the virus, supply is fully in the grip of OPEC+, and a lot will ride on how well OPEC+ countries complied with cuts in June 2020. Most recently, Russia’s CDU-TEK reported oil and lease condensate production of about 9.3 million bpd, which means that crude oil likely came in very close to the 8.5 million bpd OPEC+ mandated level, assuming lease condensate production is at least 800 000 bpd). This data will also help give an additional price boost to the Russian Urals blend, after the earlier announcement of decreased July-20 shipments by more than 40% helped the Urals benchmark reach an all-time premium to Brent of +US$2.35/bbl.

The current oil price of about US$40 is an interesting sort of “no-man’s land” territory. It’s not the level that prices will stay for too long, more like a mid-stop to wait before news and demand direct oil to other levels. But it’s not yet certain when that will happen and there are lots of strings attached. One of them for example is in the Middle East – we await official news on whether Saudi Aramco will raise its official selling price even higher after a historic US$5 – 7 bump for July-20 loadings, the steepest increase in 20 years. Another price bump would likely increase the appetite for cheaper US crude grades (especially in China).

The last, and perhaps most important thing to watch today, is the release of the EIA 914 production report. Rystad’s ShaleWell Team expects US oil production of about 11.9 million bpd for the month of April (average for the month). The Lower 48 states excluding the Gulf of Mexico probably averaged 9.6 million bpd in April, a drop of more than 700 000 bpd from the average production level in March."

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Upstream news OPEC news Oil price news Oil & gas news