This year’s driving season has been a disappointment to those who had hoped and expected that oil prices would rise higher, with the help of the pandemic which, in the opinion of these optimists, would spur people to rely more on personal transportation than on public transportation.
However, prices remained low throughout the summer despite a modest improvement. This week, the first week after the end of the driving season, prices began to lose ground, as WTI fell below $ 40 a barrel. This trend is likely to continue as pessimism spreads. Is this justified?
According to some, like energy historian Eileen R. Father, not really. Data from EIA, father writes in Article For Forbes, he notes that the actual decline in demand for gasoline, and hence for oil, from last summer to this was moderate, at less than 300,000 barrels per day. By itself, this drop could not be a sufficient reason to keep US oil prices lower than they are, let alone lower.
However, prices are trending lower because the demand for gasoline in the United States is just one of many factors that traders are watching, and it has recently been overshadowed by other factors, particularly expectations regarding future oil demand in some major markets. Recently, there was reason to believe that future demand for oil will not be as strong as many had hoped.
Earlier this week, it emerged that Saudi Arabia has Cuts Official selling prices of oil to buyers in Asia, the United States, and even Europe. This was taken as an indication that even the number one producer in OPEC, one of the most optimistic when it comes to recovering oil demand, was not sure it was recovering well anymore.
The wave of oil buying in China is showing signs of slowing down even if imports continue to rise from this time last year. This has led to concerns that oil storage in China will fill up, and these concerns are reflected in oil price movements. In all fairness, most News From China it was positive with respect to prices, as oil imports continued to rise. Negativity in the uncertainty, is equally strong for both the global economy and China specifically.
In more negative price developments, OPEC + began easing record production cuts last month from 9.7 million barrels per day to 7.7 million barrels per day. Despite this fact, few retirees had to make additional cuts to compensate for their failure to adhere to their production quotas for May, June and July, the easing of the cuts was downward in oil prices.
The new bombings of Covid-19 in many parts of the world – including China – have not helped at all. Initial optimism about a return to oil demand was dependent, perhaps unconsciously, on hopes for a stable and sustainable recovery in normal economic activity after the spring close. This has not been fully achieved with many countries in Europe fearful of a second wave of infections, and the United States is still battling high numbers of new infections daily.
Amid all this, demand for jet fuel continues to be rocky, with US refiners Struggling With excessive distilled fuel stocks. Expectations In terms of recovering jet fuel demand, optimism is nowhere near as optimistic about gasoline demand: it may take years for the air travel industry to recover, with pore crisis levels emerging before 2023. This, of course, puts pressure on prices as well. that.
By taking all of these factors together, it is very easy to see why prices tend to go down at the start of the week. Indeed, they may continue to decline: as energy industry commentator Osama Razavi pointed out in an article Article For Oilprice.com, oil fundamentals do not justify higher prices at this point.
Written by Irina Slav for Oilprice.com
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