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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday after shrugging off earlier weakness.

Oil prices are making marginal gains shortly before the regular session opening on Tuesday, reversing out of earlier losses, as hopes for further cuts in crude supplies took the sting out of concerns that a resurgence of new coronavirus infections around the world could hamper fuel demand.

At 09:26 GMT, August WTI crude oil is trading $38.05, up $0.62 or +1.66% and August Brent crude oil is at $50.56, up $0.84 or +2.11%.

Early Pressure from COVID-Concerns

Prices were capped shortly after the opening on reports that coronavirus cases rose to more than 8 million worldwide on Monday, with infections surging in Latin America, while the United States and China are dealing with fresh outbreaks. But some observers said they didn’t expect to see any return to the stringent lockdowns seen at the start of the year.


Underpinned by Hopes of More Supply Cuts

Hopes of more cuts in oil supplies by major producers also helped prevent steeper price drops, analysts said.

Prices rose on Monday after the United Arab Emirates’ energy minister expressed confidence that OPEC+ producers – member of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia – that have not been in full compliance with previously agreed cuts would up their game.

Mixed News from International Energy Agency

The IEA said on Tuesday that it expects the fall in oil demand this year to be the largest in history, but believes there are signs the market could reach “a more stable footing” over the coming months.

The IEA said oil demand in the second quarter, which saw the greatest impact from lockdown measures, was 17.8 million barrels per day lower when compared to the same period last year. That level of demand reduction was slightly less than the group had previously expected, although still unprecedented.

In its closely-watched oil market report, the Paris-based energy agency said on Tuesday that demand was expected to fall by 8.1 million barrels per day in 2020, before growing by 5.7 million barrels per day in 2021.

It means the expected drop in oil demand this year amounts to the largest in history, the IEA said, with the demand rise in 2021 forecast to be the largest one-year jump every recorded “as activity begins to return to normal across vast swathes of the economy.”

Daily Forecast

IEA Executive Director Fatih Birol told CNBC’s “Street Signs Europe” on Tuesday that a modest oil market recovery was being driven by three factors:  China’s strong exit from lockdown measures; a “very good” compliance among OPEC+ members; and the decline of production in the U.S., Canada and other G-20 countries.

“All these three things coming together tells us that the gradual recovery of the oil market continues,” he added.

Although there may be a few price adjustments over the short-run as investors book profits and buy dips, the longer term trend is likely to remain intact if the three factors the IEA director mentioned as driving the price action are adhered to.

The obvious negatives that could affect the developing uptrend over the short-run are a second wave of coronavirus cases and a rising U.S. inventories.

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