Oil Slips Below The Key Support Level At $41.50

Oil Video 24.07.20.

China’s Oil Demand Is Not As Strong As Anticipated

Bloomberg has recently reported that Russia, UAE and Iraq had to make discounts to Asian buyers as their demand for oil was not as strong as previously anticipated.

Oil traders have clearly bet that China’s economic recovery will be strong and lead to increased oil demand since the country managed to contain the virus after the initial outbreak in Wuhan.

However, there’s still more work to do. For example, Reuters has recently reported that the number of daily passenger flights in China has rebounded to 80% of pre-pandemic levels.

This is a good development, especially in comparison with other countries, but it is certainly not sufficient enough to bring oil demand to pre-coronavirus levels.

The potential weakness of Asian oil demand is another headache for oil traders. Earlier this week, the market had to deal with a surprising increase of U.S. crude inventories, and any signs that Asian demand is not showing strength could put more pressure on oil prices.

Currently, WTI oil has slipped below the key level at $41.50 and its major hope in the near term is the additional weakness of the U.S. dollar. This hope could be realized in practice as the U.S. Dollar Index, which measures the strength of the American currency against a broad basket of currencies, has settled below March lows at 94.65 and continues to move lower.

Russia’s Central Bank Is Against Hedging Russian Oil Production

Yesterday, we discussed Russia’s idea to hedge its oil production in order to avoid price shocks like the one that happened during the acute phase of the coronavirus crisis.

The implementation of this idea could have put additional pressure on oil prices since speculators would have easily guessed Russia’s hedging positions due to the size of Russia’s oil production.

Elvira Nabiullina, the influential Governor of the Russian Central Bank, has just stated that she did not support the hedging idea due to high costs and potential problems with hedging the total amount of Russia’s oil production.

The Central Bank’s position will likely stop the discussions of the hedging idea, which is good for the oil market. However, Russia’s desire to find new ways to protect its oil revenues highlights the increasingly bearish mood of major oil producers.

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