Oil Stays Near $40 After Failed Attempt To Gain Downside MomentumOil rebounds back to the key $40 level after Gilead Sciences reports promising data on COVID-19 drug.
Oil Video 10.07.20.
IEA Improves Its Demand Outlook
International Energy Agency has just provided its closely watched Oil Market Report for July 2020.
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According to IEA, the world oil demand fell by 16.4 million barrels per day (bpd) in the second quarter due to lockdowns. Meanwhile, oil supply fell to 86.9 million bpd in June thanks to production cuts from OPEC+ members and natural production cuts from other countries, including U.S. and Canada.
Demand is rebounding faster than expected, and IEA has once again improved its full-year demand outlook to 92.1 million bpd in 2020. For 2021, IEA projects that demand will total 97.4 million bpd. Jet/kerosene consumption makes up the majority of the difference between pre-pandemic demand and demand in 2021.
Interestingly, IEA expects that U.S. oil production will start to increase in the second half of this year. Currently, the U.S. oil production has stabilized at 11 million bpd after reaching a near-term low at 10.5 million bpd.
IEA also expects that Libya can grow its production by as much as 0.9 million bpd by the end of this year. In my opinion, this is a very optimistic assumption since Libyan oil industry experiences severe challenges due to civil war and many attempts to boost production have failed.
Oil Demand Depends On Success In Battle Against COVID-19
IEA noted that pandemic was not under control so the risk to its market outlook was shifted to the downside.
Today’s oil price dynamics are a vivid reminder of the impact of the virus situation on the mood of oil traders.
Earlier, oil was under pressure as traders were worried about another record increase in the number of coronavirus cases in the U.S.
However, WTI oil managed to rebound closer to the $40 level after Gilead Sciences announced that its antiviral drug remdesivir, which is tested against coronavirus, showed success in a late-stage study.
The key question for the oil market right now is whether the recent surge in the number of coronavirus cases will put significant pressure on economic activity and mobility.
If this does not happen, oil has good chances to stay near the $40 level. At the same time, oil will most likely need significant positive catalysts to continue its upside trend and get away from current levels.
For a look at all of today’s economic events, check out our economic calendar.