Oil Is Up Ahead Of OPEC+ Meeting Despite Increase In Inventories

Oil Video 08.04.20.

Oil Inventories Increase Further

Oil had a choppy trading session today as traders prepared themselves for OPEC+ meeting which is scheduled for April 9, 2020.

Previous days were full of media reports that described positions of various oil producers ahead of the meeting. Today, the media is mostly silent so we can assume that the period of “bargaining through media” is over and the oil market players are finalizing their true negotiating positions ahead of the meeting.

Yesterday, API Crude Oil Stock Change data showed an increase in oil inventories of 11.9 million barrels. Today, the EIA Petroleum Inventories showed an increase of 15.2 million barrels. It is not surprising that inventories continue to increase as demand is under pressure from virus containment measures.

Importantly, the EIA report indicated a decrease in oil production. Saudi Arabia and Russia have indicated that they want to see U.S. cutting its oil production, or no production cut deal would be reached.

The U.S. has problems with a coordinated production cut since oil is produced by many independent companies while anti-trust laws make it hard to cooperate in order to boost oil prices.

If the U.S. production falls “automatically”, the U.S. side can use it as an argument that the country also participates in production cuts.

EIA Expects WTI oil at $29 in 2020

The U.S. Energy Information Administration has recently published its short-term energy outlook in which it stated that it expected that Brent oil prices would average $33 per barrel in 2020, while WTI oil prices would average $29 per barrel.

The previous forecast was decreased by $10 as the hit to oil demand was bigger than expected.

The recent high for WTI oil was near the $29 level, and it remains to be seen whether an oil production cut deal could help oil prices gain a foothold above this level.

At this point, it looks like the destruction of oil demand caused by virus containment measures will lead to sustained pressure on oil prices in the coming months even if a production cut deal is reached.

In this light, EIA projections seem realistic as high inventories will continue to impact oil market even when the situation with supply/demand balance gets better.