Oil prices declined on Wednesday as oil demand seems fragile amid a rise in Covid-19 infections, while supply increases.
Rystad Energy’s daily market comment comes from Senior Oil Markets Analyst Paola Rodriguez-Masiu:
"The oil market is struggling to interpret the continuous rise of Covid-19 infections and the fact that total cases exceeded one million this week. It is a scary number and although we are now used to worsening pandemic news, such a milestone is not one to brush off easily.
Amid the rise of infections and Covid-19’s second wave, thinking of the restrictions that are being put in place again and of the ones that are coming, traders see oil demand as fragile. Indeed, the recovery that started in 1H20 is now muted and we may see some production needing to be sent to inventories in 2020’s last quarter.
Although the API report suggested that US commercial crude stockpiles registered a moderate decline, the levels were not necessarily taken as positive by the markets. The modest draw points to the slowdown of refinery activity in the United States amid the fall maintenance season, hurricanes hits, and meagre middle distillate cracks that are taking a toll on refinery margins. Global refinery activity is expected to remain laggard through year-end as a meaningful pickup in activity is not likely until the overhang left during the second quarter of the year is not eliminated.
The overall mood in the market is not jolly either. Majors are revising their oil price and demand forecasts and traders also price in the lag. Gunvor for example sees a 2-year time-frame for the recovery.
While demand struggles to keep up, supply is rising. OPEC+ has not decided to amend its cuts to address the worsening market situation, even though it is surely monitoring it. Libya’s production is coming back and it looks like the unwanted relative at the dinner table, that most have forgotten. The market is also taking negatively news of Russian production for September probably exceeding their OPEC+ quotas.
Lower prices are justified under the current market dynamics. The only bullish piece of news in the horizon comes from Norway. Norwegian oil operators plan to shut-in 535 000 bpd of crude and condensate output if an offshore worker strike moves forward. In the first couple of days the shut-ins would have a material impact on oil markets, but for the month of October, we expect the effect to be moderate. In the past, the government has made it a priority to keep energy worker strikes short-lived and operators usually end up compensating for lost volumes by ramping up production after the strike."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/30092020/oil-falls-on-supply-demand-balance-concerns/
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