Oil Rallies Above The $47 Level

Oil Video 10.12.20.

Oil Gets To New Highs

Yesterday, oil found itself under pressure after EIA Weekly Petroleum Status report indicated that crude inventories increased by 15.2 million barrels. However, oil failed to develop downside momentum and quickly rebounded.

Today, oil managed to get above the $47 level as traders increased their bets on the recovery of oil demand. This means that the oil market has easily managed to shrug off bearish inventory data as traders focused on the future.

This is a very importnat development as near-term fundamentals will remain challenging for oil. If traders continue to focus on vaccination rather than oil demand data in the next few months, oil will have more room for upside. The speed of today’s upside move also indicates that some traders were caught in ill-timed bearish bets. If that’s the case, the rally may be just getting started.

Gasoline Demand Continues To Decrease

Yesterday, EIA reported that gasoline inventories increased by 4.2 million barrels and were about 5% above the five-year average for this time of the year.

This is not surprising as gasoline demand declined from 7.97 million barrels per day (bpd) in the previous week to 7.6 million bpd. A year ago, gasoline demand stood at 8.88 million bpd.

Gasoline demand typically declines towards the end of the year, and the year 2020 is not an exception. Unfortunately, gasoline demand remains well below previous levels and shows no signs of closing the gap.

If this trend continues, gasoline inventories will move higher. However, oil traders may choose to ignore rising inventories as they have done in previous weeks.

At this point, the optimism is so strong that is not clear what kind of data can push oil lower in the near term. The world continues to struggle against the second wave of the pandemic but oil traders believe that strong oil demand from Asia will offset the current weakness in Europe and provide the necessary support in the first quarter.

After the first quarter of 2021, the spread of the virus should slow down as some people will get vaccinated, and the world will ready for a strong driving season in summer. Currently, this bullish thesis looks realistic, and oil has good chances to get to the $50 level.

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