Oil Stays Near $40 As Traders Focus On Demand RecoveryOil stays near the $40 level as OPEC boosts its oil demand outlook for 2020.
Oil Video 14.07.20.
OPEC Increases Its Global Oil Demand Outlook
OPEC has just published its Monthly Oil Market Report for July. OPEC has decided to revise its previous demand outlook by 0.1 million barrels per day (bpd) to a decline of 8.9 million bpd.
The positive revision is due to better-than-expected economic data from OECD countries. OPEC’s outlook does not take into account potential coronavirus-related disruptions which are in spotlight following California’s decision to reimpose virus containment measures after a surge in the number of new coronavirus cases.
For 2021, OPEC expects demand growth of as much as 7 million bpd. This growth will still put 2021 oil demand below 2019 levels. Interestingly, OPEC expects that it will satisfy demand for 6 million bpd out of the additional 7 million bpd demanded by the market in 2021.
Such a forecast implies that U.S. domestic oil production will not rebound fast while current production cuts will lead to reservoir damage in some non-OPEC countries (for example, Russia may have trouble bringing all of its production back due to geology and climate).
As OPEC believes that it will supply most of additional oil in 2021, it’s high time to decrease current production cuts from 9.6 million bpd to 7.6 million bpd. This decision is likely to be announced this week.
OPEC+ Compliance With Oil Production Cuts In June Was 107%
According to a Reuters report, OPEC+ panel indicated that compliance with production cuts was 107% in June.
This strong compliance provided additional support to the market and helped WTI oil settle near the $40 level.
Right now, the biggest risk for oil price upside is the potential second wave of lockdowns. Delta Air Lines CEO has already stated that demand was stalling due to the surge in the number of new coronavirus cases as well as due to additional virus containment measures.
At this point, airline demand is not going down but slower recovery will put current oil demand forecasts under question.
For now, oil continues to trade near $40 after several attempts to settle below this level which highlights the strength of the current upside trend. However, oil needs additional catalysts to gain more upside momentum. Such catalysts could be delivered by the upcoming API Crude Oil Stock Change and EIA Weekly Petroleum Status reports.
For a look at all of today’s economic events, check out our economic calendar.