Oil Prices Dip Again Due To Perception Of Stalled Demand

Andrew Cummings
September 13, 2020

Both Brent and US crude lost about 6% on the week after a series of signals that showed markets still have an abundance of supply.

Oil prices extended declines on Friday, under pressure from a surprise rise in USA stockpiles and ongoing weak demand from the coronavirus pandemic.

Globally, the outlook for crude consumption also looks grim, with S&P Global Platts forecasting oil demand to decline more than 8 million barrels a day this year and unlikely to get back to 2019 levels before 2022.

Benchmark U.S. crude oil for October delivery rose 3 cents to $37.33 a barrel Friday.

Diminished gasoline and distillate inventories provided a bright spot, but signs that the pandemic-stricken global economy will take longer than anticipated to recover have dented US stocks and pressured oil prices.

Additionally, further dampening the markets mood, the U.S. Senate killed a Republican bill that would have provided around $300 billion in new coronavirus aid.

The Energy Information Administration said crude inventories rose 2.0 million barrels last week compared to a poll forecasting a 1.3-million barrel draw, surprising considering that much of the Gulf of Mexico production has not yet returned in the wake of Hurricane Laura.

"There continues to be concern over the state of the physical market, with values weakening and increasing difficulty in shifting West African cargoes - likely due to a lack of Chinese buying recently", ING analysts said in a note earlier this week.

In the US, refineries slowly returned to operations after production sites were shut down due to storms in the Gulf of Mexico and wider region earlier in the month.

As global oil inventories are sharply above average and market fundamentals are not improving, according to Morgan Stanley, some traders have reportedly started to book tankers to store millions of barrels of crude oil and refined fuels at sea again.

"The decline is triggered by a series of unfortunate events: a surge in Covid-19 cases worldwide, the end of the peak summer driving season, the slowdown of the Chinese crude importing machine, and major producers trimming the OSPs to Asia as refinery margins worsen", Rystad Energy's senior oil markets analyst Paola Rodriguez-Masiu said.

Record supply cuts by the Organisation of the Petroleum Exporting Countries and allies, known as OPEC+, have helped support prices, but with grim economic figures being reported nearly daily, the outlook for demand for oil remains bleak.

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