Oil Is Losing Ground Amid Virus FearsOil is trying to settle below the $40 level despite the bullish inventory report as traders fear that the second wave of virus in Europe will put pressure on demand.
Oil Video 15.10.20.
Fears About The Second Wave Of The Virus Put Pressure On Oil
Oil was not able to avoid the negative impact of the global market sell-off. Traders fear that the second wave of coronavirus in Europe will lead to a second wave of lockdowns which will put pressure on the economy and hurt demand for oil.
While the potential second wave of lockdowns looks scary, oil traders have mostly ignored the negative developments on the coronavirus front in recent weeks.
It looks like the market does not believe that new restrictions could seriously hurt demand for oil. For example, France has recently imposed a curfew on its biggest cities.
The curfew will certainly put pressure on small businesses in the services segment but its impact on demand for oil will be limited since the country did not impose any restrictions on travelling.
Interestingly, oil has managed to stay near the $40 level despite recent indications from OPEC+ that production will increase by 2 million barrels per day (bpd) at the beginning of 2021 despite the second wave of the pandemic. At this point, it looks like oil has found strong support near this psychologically important level.
Crude Inventories Decline By 3.8 Million Barrels
EIA has just reported that crude inventories fell by 3.8 million barrels. Gasoline inventories declined by 1.6 million barrels while distillate fuel inventories decreased by 7.2 million barrels.
There were two main catalysts for the decline in inventories. First, crude oil imports were down by 447,000 barrels per day (bpd) from the previous week. Second, U.S. domestic oil production declined from 11 million bpd to 10.5 million bpd due as the hurricane forced U.S. Gulf of Mexico oil producers to evacuate workers from oil platforms.
While the inventory report was bullish, it remains to be seen whether oil will be able to settle back above the $40 level amid virus fears. The U.S. oil production will soon get back to its previous levels so additional demand for oil is required to put more pressure on inventories.
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