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Oil Stays Glued To $20 Level As Traders Weigh Demand Cut Estimates

By:
Vladimir Zernov
Published: Apr 16, 2020, 15:15 UTC

Oil fails to show meaningful upside as traders focus on the potential hit to oil demand in 2020.

Crude Oil

Oil Video 16.04.20.

OPEC Believes That Oil Demand Will Decrease By 6.8 Million Barrels Per Day In 2020

Yesterday, we have discussed the April Oil Market Report published by the International Energy Agency. IEA concluded that global oil demand would fall by 9.3 million barrels per day (bpd) in 2020.

Today, OPEC published its own oil market report and provided its evaluation of the hit to demand in 2020. OPEC believes that oil demand will decline by 6.8 million bpd.

IEA and OPEC estimates are materially different from each other, although both show an unprecedented hit to oil demand.

So, why are they so different? The first factor is the complexity of the current situation. No one knows how long all virus containment measures will stay in place in various countries of the world, so it’s hard to evaluate the impact on the oil demand.

The second factor is that OPEC represents oil producers, while IEA is the voice of oil consumers. In this light, it’s not surprising that OPEC estimates a smaller hit to oil demand while the consumers believe that oil demand will be even lower.

U.S. Discusses An Opportunity To Pay Oil Companies For Leaving Oil In The Ground

Lack of physical storage for oil is a huge problem in the current crisis. In case any oil producing country runs out of storage, the prices for its oil will drop through the floor.

It looks like the U.S. has a valid idea on how to support the local oil industry and prevent oil storage from being overwhelmed. In theory, the U.S. can pay oil companies to stop producing oil, and count the oil that stays underground as part of the national strategic reserve.

In case this scheme is realized in practice, the U.S. may earn decent money when the acute phase of the crisis ends, and the oil prices rebound to higher levels. In addition, the move may save many jobs and prevent some oil companies from going bankrupt.

It remains to be seen whether early reports about this idea will be later proved by real moves, but it certainly looks like oil prices badly need additional positive catalysts to stay above $20 per barrel.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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