Oil prices are falling today, with traders ignoring yesterday’s US crude stock news and acknowledging Covid-19’s threat to the demand recovery, while waiting for OPEC’s returned production to hit the market again.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the price fall:
"Such a clear case of oil prices moving opposite to the direction that the day’s news would normally command is really a sober reminder of the fragile market we are in nowadays.
Not even a 10 million+ barrel draw in US inventories of crude was enough to push prices higher.
Covid-19 is the elephant in the room and the US death toll passing the milestone of 150,000 has spread concern to every kind of market, and commodities too.
Traders, who have been brushing away so far the reports of new infections, now started to acknowledge that the danger to oil demand’s recovery is very real.
Also, even though crude stocks fell, those of US gasoline and distillates didn’t, which shows the devil is in the details. Road transport is what has led the market recovery and if road fuel stocks rise, it indicates a slowdown in demand for transport fuels.
Real-time data for global on-road traffic is not signaling any further pick-up or major declines in activity either. However, note that last week gasoline stocks built during what is still a prevalent “driving season” in the US, adding to the surprise.
Additionally, the market is digesting news that Aramco is expected to reduce its official selling prices for September as the market has softened somewhat.
We are two days away from the start of OPEC+ cut tapering, and we expect to see larger moves in prices next week, when the Brent future contract rolls over into trading October delivery and the extent of higher OPEC+ volumes becomes more visible to the market.
The production that is coming back will create a new global surplus of oil, which will be added to the existing stocks, driving them to even higher levels in the next four months. Something to look at! Since some of the extra oil that the market will get is traditionally sent to the US, keeping an eye at its imports and vessel commissioning will give volumes of hints of how already stretched stocks will be affected in the country.
As the first business day of August is a Monday, it is quite interesting to see how the price will close tomorrow, ahead of a weekend, and if the bearish sentiment this week will erase even more gains on anticipation of the extra OPEC output."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/30072020/oil-falls-on-covid-19-fears-opecs-production-comeback/
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