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Vladimir Zernov
Crude Oil

Oil Video 06.07.20.


Oil Fails To Get Significant Upside Momentum

Oil managed to settle above the key $40 level but did not get much momentum as the rising number of COVID-19 cases in the U.S. kept oil prices in check.

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According to data from Johns Hopkins University, the U.S. has already recorded almost 2.9 million cases, and the recent data implies that the spread of the coronavirus in the U.S. is increasing.

However, a recent Reuters report highlighted the fact that traffic in some affected states did not show signs of significant weakness which is bullish for the oil market.

At this point, it looks like the oil market will continue to ignore any negative developments on the coronavirus front until it sees that additional virus containment measures have tangible negative impact on oil demand.

So far, oil demand has been increasing, and this upside trend provided material support to oil prices. Tomorrow, traders will have a chance to evaluate the new API Crude Oil Stock Change report which will show whether the increase of demand puts pressure on crude inventories.

The Spread Between The Front-Month Contract And Longer-Dated Contracts Continues To Narrow

During the acute phase of the coronavirus crisis, the spread between the front-month contract and longer-term contracts has been significant as traders were worried about the availability of oil storage in the near term.

At this point, this spread has almost disappeared. The spread between the front-month August 2020 contract and the December 2020 contract is about 50 cents.

This is a significant indication that the market is rather tight thanks to coordinated production cuts from OPEC+ and natural production cuts from U.S. oil producers.

Current OPEC+ production cuts of 9.6 million barrels per day (bpd) are set to end in July, when the group will transfer to production cuts of 7.6 million bpd. Originally, the plan implied production cuts of 9.7 million bpd but Mexico was not ready to continue the initial cuts as it had big plans for its oil industry.

The current futures curve is telling us that the market is well-prepared for the upcoming increase of oil production from OPEC+ countries. In case the current optimism of the equity markets finally finds its way to the oil market, oil will have more room for upside.

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

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