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Vladimir Zernov
Crude Oil

Oil Video 15.09.20.


IEA Reduces Its 2020 Oil Demand Forecast

Yesterday, we discussed the latest OPEC Monthly Oil Market Report which included a downward revision of OPEC’s oil demand forecast for 2020 and 2021.

Today, International Energy Agency (IEA) released its Oil Market Report which contained similar developments.

IEA stated that the rising number of new coronavirus cases put material pressure on the rebound of oil demand. As a result, IEA decided to reduce its estimate for oil demand growth in the second half of this year by 0.4 million barrels per day (bpd).

IEA noted several bearish developments. OECD crude stocks increased in July, returning closer to record levels. In addition, China slowed down its oil purchases for September and October.

IEA also stated that trading houses were searching for ships to store oil which means that they expect weak oil prices in the near term and want to sell their oil at a higher price in the future.

Both OPEC and IEA reports were clearly bearish for oil, and it looks like the main supportive factor for oil prices right now is Hurricane Sally.

U.S. Gulf of Mexico Oil Companies Are Once Again Forced To Shut Down Production

Hurricane Sally has already led to shutdowns of about 21% of U.S. Gulf of Mexico offshore oil production. Previously, Hurricane Laura pushed U.S. domestic oil production from 10.8 million bpd to 9.7 million bpd.

The latest EIA Weekly Petroleum Status Report indicated that U.S domestic oil production rebounded from 9.7 million bpd to 10 million bpd but remained well below pre-hurricane levels.

As a result of the recent shutdowns, U.S. oil production may return closer to 9.7 million bpd. Tomorrow, EIA will provide new data on the state of the U.S. oil industry but it will not include the most recent developments.

At this point, it looks like Hurricane Sally will serve as a temporary bullish catalyst for oil. The current fundamental developments are alarming. While the world economic recovery continues, the recovery of demand for oil is not as fast as previously expected.

In addition, problems on the coronavirus front will continue to put pressure on aviation demand for the foreseeable future. Oil demand will not be able to recover to pre-pandemic levels without strong air travel demand.

Thus, it remains to be seen whether oil will get enough support to stay near current levels once U.S. production returns to pre-hurricane levels. Most likely, WTI oil will need additional positive catalysts to gain upside momentum and move above the $38 level.

For a look at all of today’s economic events, check out our economic calendar.

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