Oil Is Set To Finish The Week Above The Key $40 LevelOil is losing some ground but remains above the psychologically important $40 level.
Oil Video 16.10.20.
OPEC+ Believes That Demand Is Recovering Slower Than Expected
Yesterday, OPEC+ technical committee met to discuss the latest developments. According to reports, OPEC+ discussed how weaker oil demand outlook, surging coronavirus and increasing production in Libya could impact oil prices.
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OPEC+ thinks that the current demand recovery is not as robust as previously expected. The main problem is the second wave of the virus which has already forced various countries to implement additional virus containment measures.
The increase of oil production in Libya is another worrisome development for the oil market. Libya, which is torn by a civil war, does not have to comply with any production quotas and aims to increase its oil production as fast as possible.
The key question is whether OPEC+ will decide to maintain current production cuts beyond this year. In recent days, Russia and UAE indicated that they were willing to increase production as planned in 2021 despite the second wave of the virus.
However, it looks like OPEC+ decision will be dictated by the state of the world economy in December 2020, and current statements from OPEC+ members may differ from their final decision.
U.S. Gasoline Demand Declines to 8.58 Million Barrels Per Day
EIA reported that U.S. gasoline demand declined from 8.9 million barrels per day (bpd) to 8.58 million bpd. A year ago, U.S. gasoline demand was 9.35 million bpd, so the current demand is lower by 0.77 bpd.
Gasoline demand quickly recovered from the lows reached at the peak of the crisis but this recovery stalled in recent weeks. At this point, gasoline demand stabilized at levels that are well below the levels seen in 2019.
Most likely, additional recovery of gasoline demand will require material improvements on the coronavirus front. Currently, the number of new daily cases in the U.S. is rising, and it’s hard to expect material progress on this front in the upcoming weeks.
Interestingly, oil traders have managed to shrug off coronavirus fears so oil has settled above the $40 level. The recent inventory report has clearly provided additional support to the market. However, continued demand recovery is necessary to push oil prices to higher levels.
For a look at all of today’s economic events, check out our economic calendar.