Oil Tries To Settle Back Above The $42 Level

Oil Video 12.11.20.

IEA Cuts Its Oil Demand Outlook

Today, the International Energy Agency (IEA) published its monthly oil outlook and provided new estimates for oil dmenad.

Not surprisingly, IEA decided to cut its demand estimate due to lockdowns in Europe and the surge in the number of new coronavirus cases in the U.S.

For the full-year 2020, IEA expects demand to decrease by 8.8 million barrels per day (bpd) compared to its previous estimate which called for a decline of 8.4 million bpd. At te same time, the outlook for demand growth in 2021 was improved by 0.3 million bpd.

IEA projects that demand will decrease by 1.2 million bpd in the fourth quarter of 2020 and by 0.7 million bpd in the first quarter of 2021 compared to its previous estimates. Obviously, demand estimates remain a moving target due to uncertainty regarding the spread of coronavirus.

At first glance, IEA report looks bearish for the oil market, but there is a silver lining – IEA believes that supply from producers outside of OPEC+ will increase by just 0.2 million bpd next year. Notably, IEA expects that U.S. oil production will decline by 655,000 bpd in 2021.

This means that if OPEC+ countries manage to extend their current production cuts for the first quarter of 2021, the market will have the time to wait for the increase of oil demand after the end of European lockdowns. This scenario will be bullish for oil.

Oil Gains Upside Momentum Despite Coronavirus Surge In U.S.

The recent IEA report has initially put some pressure on oil prices but the market managed to recover, and oil is trying to settle back above the $42 level. Oil traders have decided to ignore the recent coronavirus data from U.S. which reported more than 140,000 new cases.

Perhaps, the market is still supported by the crude inventory draw, but it also looks that oil traders believe that COVID-19 vaccine will change the situation faster than many analysts expect.

In addition, some speculators may be betting that OPEC+ will extend current production cuts by 6 months to put more pressure on inventories and deal with the rising production from Libya which has recently reached the 1 million bpd level.

While optimism prevails, it remains to be seen whether the market will be able to ignore the coronavirus situation in the U.S. as recent trends are alarming.

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