Oil prices could see a rebound this week on signs that supply and demand is coming into balance, but we still need a vaccine to secure long-term growth, analysts cautioned.
Crude oil inventories in the United States, the largest and most transparent economy in the world, continue to decline, suggesting demand is back. Data, however, may be skewed by a strong Atlantic hurricane season that interfered with production and required companies to draw down inventories. As of Friday, federal data showed about 8 percent of U.S .oil production and 6 percent of natural gas production in the Gulf of Mexico was still offline because of Hurricane Delta.
Tamas Varga, with London oil broker PVM, said the steady decline in commercial oil stocks could be a sign that balance between global supply is starting to match demand.
“Is re-balancing under way? The weekly U.S. statistics will provide us with a picture on that,” he said.
COMEBACK: Rig count jumps by double-digits
The outlook might have a Libya problem, however. A tacit truce in a civil war raging since the end of the regime of Moammar Qadhafi in 2011 has paved the way to more oil exports. The re-opening of the giant Sharara oil field, idled since January, puts the nation on pace for 700,000 barrels per day in output, an increase that will be sure to weigh on the OPEC+ committee monitoring compliance with production curbs. The parties to the production agreement meet Monday.
China, one of OPEC’s biggest clients, reported third quarter gross domestic product grew at 4.9 percent year-over-year, slightly below the consensus of 5 percent. China, however, is still hungry for oil. Paul Hicken, an associate editorial director at S&P Global Platts in London, said the market may still have to deal with a lower-for-longer situation, despite Chinese strength.
“China buying and OPEC+ production cuts have provided an oil price floor and the challenges around demand have provided a ceiling,” he said.
SUPPLY SIDE: Commercial crude inventories fall
The pandemic, though, is still raging and colder temperatures in the Northern Hemisphere suggest things will get worse before they get better. Oil prices have been stuck in the mid- to low- $40s for much of the second half of 2020. A report from Swiss investment bank UBS said health for the oil market depends on the health of the world.
“The catalyst for higher prices will come from an effective and widely available vaccine, in our view, which we expect to happen in 2Q21,” the report read.
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Oil prices stuck between competing signals - Houston Chronicle
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