Oil Price Fundamental Daily Forecast – Second Wave Will Complicate Efforts by Producers to Balance the Market

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday after giving up earlier gains, as a resurgence in COVID 19 infections across the globe underpinned concerns over economic growth and a recovery in fuel demand.

The selling pressure is offsetting gains on Wednesday that were fueled by a private industry report that showed an across the board drop in supplies of crude oil, gasoline and distillates.

At 08:28 GMT, December WTI crude oil futures are trading $40.92, down $0.42 or -1.02% and December Brent crude oil is at $42.91, down $0.41 or -0.95%.

Expectations of Further Demand Destruction

European nations are reviving curfews and lockdowns amid the growth in new coronavirus cases, leading to predictions of more demand destruction in the energy markets. India, which is on track to overtake the U.S. with the world’s most COVID-19 infections, is bracing for a surge of cases in coming weeks as it heads into its main holiday season. The country is the world’s third-biggest oil user, according to Reuters.

American Petroleum Institute Weekly Inventories Report

The American Petroleum Institute (API) reported on Wednesday a major draw in crude oil inventories of 5.421 million barrels for the week-ending October 9. Analysts had predicted a build of 400,000 barrels.

Oil production in the United States rebounded last week, but was still down from a high of 13.1 million bpd on March 13 U.S. oil production currently sits at 11.0 million bpd, according to the Energy Information Administration – 2.1 million bpd under those March highs.

The API also reported a draw in gasoline inventories of 1.513-million barrels of gasoline for the week-ending October 9 – compared to the previous week’s 867,000-barrel draw. Analysts had expected a 1.607-million-barrel draw for the week.

Distillate inventories were down by 3.930 million barrels for the week, compared to last week’s 1.033-million-barrel draw, while Cushing inventories rose by 2.199-million barrels.

IEA and OPEC Suggest Oil Demand Growth Could Be Weaker than Anticipated

Global oil stocks which rose during the height of the pandemic are being steadily reduced, the International Energy Agency (IEA) said on Wednesday, but a second wave is slowing demand and will complicate efforts by producers to balance the market.

“There is only limited headroom for the market to absorb extra supply in the next few months,” the IEA said in its monthly report. “Those wishing to bring about a tighter oil market are looking at a moving target.”

Short-Term Outlook

Perhaps we saw an overreaction to the IEA report on Wednesday. While it may be true that the efforts by producers to stabilize oil prices and create a strong draw on storage have worked, that news represents the past.

With the coronavirus seemingly out of control, oil traders have to start bracing for another round of restrictions and that could only lead to further demand destruction and lower prices. At this time, the robustness of the economic recovery is being questioned and thus the prospects for oil demand growth.

The U.S. Energy Information Administration (EIA) is due to release its weekly data on Thursday, a day later than normal following a public holiday.

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