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Vladimir Zernov
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Crude Oil

Oil Video 12.05.20.

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UAE and Kuwait Join Saudi Arabia In The Attempt To Improve Near-Term Supply/Demand Balance

Yesterday, Saudi Arabia announced that it will cut its oil production by an additional 1 million barrels per day (bpd). This move has provided some support for oil prices which were under pressure from fears about a potential second wave of the coronavirus.

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Saudi Arabia’s decision was followed by announcements of additional production cuts by UAE and Kuwait. UAE is set to decrease its oil production by another 100,000 bpd, while Kuwait will cut its oil production by additional 80,000 bpd.

The key question for the market is whether these cuts are simply an effort to boost oil prices or they are forced due to lack of buyers for Middle East oil.

At this point, the oil market has taken the news as a moderately positive catalyst. There was no rally but oil prices did not dive due to oversupply fears.

Meanwhile, oil stays at low levels with most benchmarks below $30 per barrel. In this environment, oil producers will have to continue adjusting their production to current levels of demand until the demand recovers together with the world economy.

Recent Oil Price Recovery Will Get Tested By Inventory Reports

As it is hard to estimate the hit to oil demand in the near term, traders focus on weekly inventory reports to evaluate the current condition of the physical oil market.

API Crude Oil Stock Change will be published today while the EIA Weekly Petroleum Status Report is due tomorrow.

Currently, analysts expect that crude oil stocks have increased by 4.3 million barrels. A figure below this level could provide support for WTI and push it closer to recent highs.

In addition to the crude oil stock change, the market will focus on the new data about U.S. domestic oil production. The previous report showed that domestic production declined from 12.1 million bpd to 11.9 million bpd, and the market expects continued decrease of production as oil companies shut down uneconomic wells.

In case production is cut by more than 200,000 bpd compared to the previous week’s level, oil will likely get increased buyer support.

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