Oil Moves Towards The $40 Level On Virus Fears

Oil Video 13.11.20.

Gasoline Demand Unexpectedly Rebounds

Yesterday, EIA provided its new Weekly Petroleum Status Report. The report was very interesting as its inventory data was different from the API Crude Oil Stock Change report which was published earlier this week.

According to EIA, crude inventories increased by 4.3 million barrels while gasoline inventories decreased by 2.3 million barrels. Distillate fuel inventories decreased by 5.4 million barrels.

The increase in crude inventories was driven by the surge in imports which were up by almost 0.5 million barrels per day (bpd) compared to the previous week’s levels. Meanwhile, U.S. domestic oil production remained flat at 10.5 million bpd.

Interestingly, U.S. gasoline demand rebounded from 8.34 million bpd in the previous week to 8.76 million bpd. While gasoline demand was 0.56 million bpd lower than in 2019, the sudden uptick in gasoline usage is a positive surprise since demand was trending down at this time in 2019. This downtrend lasted until the end of the year which is not surprising given the seasonality of gasoline demand.

If gasoline demand continues to increase, the oil market will get additional support. However, it remains to be seen whether gasoline demand can move higher amid a surge in the number of new coronavirus cases in the U.S.

Virus Fears Put Pressure On Oil

The recent optimism regarding COVID-19 vaccine evaporated, and oil found itself under significant pressure. Traders realized that mass vaccination is a very difficult task that will take many months, and sold oil after the major upside move.

Unlike stocks, oil is a physical product which cannot rely exclusively on hopes and forecasts – it needs real demand that will put pressure on inventory levels.

The near-term oil price dynamics depend on whether a long-term catalyst like a potential COVID-19 vaccine can offset the negative impact from short-term catalysts like European lockdowns and rising oil production in Libya.

If the market decides to take a long-term view, oil will have a chance to get to another test of the resistance at the $43 level. If short-term catalysts prevail, we’ll see another move below the $40 level.

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