Oil Mixed After Yesterday’s Major Sell-Off

Oil Video 12.06.20.

J.P. Morgan Projects That Oil Demand Will Return To Pre-Crisis Levels In November 2021

Yesterday, oil found itself under major pressure as worries about the speed of demand recovery and fears about the second wave of coronavirus have led to turmoil in the global markets.

The pace of oil demand recovery is one of the most intriguing topics in the oil market right now, so it’s always interesting to discuss a new forecast.

This time, J.P. Morgan is out with a projection that demand will return to 100 million barrels per day (bpd) in November 2021. For this year, demand is expected to average 91 million bpd.

For the longer term, J.P. Morgan expects a 3 million bpd decrease in oil demand compared to its previous forecast for this decade. However, underinvestment in the oil industry will lead to a 5 million bpd decrease in oil supply. This forecast looks rather bullish for oil in the longer-term.

Will U.S. Domestic Oil Production Continue To Drop?

EIA Weekly Petroleum Status Reports have shown steady declines in U.S. domestic oil production. After peaking at 13.1 million bpd, oil production has steadily decreased and reached 11.1 million bpd in the latest report which was published on June 10.

Since the beginning of the coronavirus crisis, the U.S. oil industry has cut oil production by 2 million bpd. Such cuts are already similar to cuts implemented by leading OPEC+ members Saudi Arabia and Russia.

It is logical to assume that producers have shut down the most expensive wells as oil prices declined to levels which were hard to imagine just a few months ago.

However, oil managed to recover significantly and is currently trading in the $35- $40 range. The key question is whether this oil price rebound will provide any support to the U.S. oil industry and decrease the pace of production cuts.

There’s a consensus that U.S. oil production will fall below 11 million bpd this year. However, it remains to be seen whether production can decline materially from the current 11.1 million bpd.

The upcoming EIA Weekly Petroleum Status reports will be very helpful for traders as they will show whether the previous pace of production cuts is intact or whether the U.S. oil production starts to find support at lower levels. The next report is scheduled for Wednesday, June 17.

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