Are the prospects for oil demand too rosy or not rosy enough? | Rigzone

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The past week has been particularly volatile in the oil market, with Brent and West Texas Intermediate (WTI) futures prices losing more than 6% and 7%, respectively, on Monday. The sharp drop at the start of the week is due to factors such as an OPEC + deal to increase production, growing fears of COVID-19 and the rising US dollar, Bloomberg reported. Prices have since rebounded, however, with WTI and Brent erasing Monday’s losses on Thursday night – as shown in Rigzone pricing charts.

The recent volatility in the oil market is reducing global demand, suggests one of Rigzone’s prognosticators. Meanwhile, another regular market observer offers a less bullish approach. Read on for their views.

Assembly area: What were the market expectations that actually happened over the past week – and what expectations didn’t happen?

Jon Donnel, Managing Director, B. Riley Advisory Services: It has been an exceptionally volatile week for oil prices as OPEC + finally compromised to add 400,000 barrels per day to the market each month for the rest of the year things got off to a good start on Monday. That said, global demand remains strong and is still expected to exceed supply next year, helping prices return above $ 71 a barrel. The magnitude of day-to-day changes makes the market a bit volatile, but the underlying fundamentals provide a constructive backdrop for the commodity.

Tom Seng, Director – School of Energy Economics, Policy and Commerce, Collins College of Business, University of Tulsa: OPEC + and the COVID-19 delta variant provided overwhelming bearish sentiment at one point this week, pushing WTI and Brent below the $ 70 level for the first time in more than a month. However, both notes seem to be heading for a minor gain or loss over the course of the week.

The OPEC + group ultimately made a decision on production, but that was not a question American producers wanted to hear as their plan now is to increase production by 400,000 barrels per day (bpd) over the next few months, resulting in a total increase of 3.2 million bpd. above current levels. However, Saudi Arabia believes that global demand will be able to absorb these gradual increases. Meanwhile, the spread of the Delta variant of the COVID-19 virus continues, with more countries reporting an increase in cases. The International Olympic Committee would have almost canceled the Tokyo Olympics at the last minute while in the United States the Delta variant is now the dominant strain. New cases of an additional strain of the virus, “Lambda”, are also being reported.

The increase in supply, coupled with fears of another drop in demand linked to the virus, caused crude prices to fall by more than $ 5 a barrel on Monday. But, this “too far, too fast” price drop led to more buying for the rest of the week, bringing prices back to levels close to the end of last week. The rally was also supported by technical indicators which showed that prices exceeded two standard deviations below the mean, a strong signal that prices would return to their moving averages. The August 2021 WTI futures contracts expired on Tuesday, with September now being the most opportune month.

The Energy Information Administration’s (EIA) weekly State of Oil report said commercial oil inventories rose 2.1 million barrels as analysts called for a 3.7 million barrel drop . The American Petroleum Institute (API) reported that inventories rose 800,000 barrels. Total crude stored now stands at 440 million barrels, 7% below the five-year average for this time of year. Refinery utilization was 91.4% compared to 91.8% the previous week. Total motor gasoline inventories edged down 100,000 barrels and are now at the five-year average for this time of year. The API had called for an increase in gasoline inventories by 3.3 million barrels. Distillates have fallen 1.3 million barrels and are 4% below the five-year average. Crude oil inventories at the key bub in Cushing, Oklahoma fell 1.3 million barrels to 36.7 million barrels, or about 48% of capacity there – the lowest level since January 2020 US oil production held steady at 11.4 million bpd, 300,000 bpd above year-ago levels. And, for the first time in several weeks of reporting, no crude has been drawn from the strategic oil reserve.

Energy data firm Enverus reports an increase of 24 oil and gas platforms for the week ending July 23, including 11 in the Permian Basin. Meanwhile, the EIA reports a drop of 269 drilled but unfinished (DUC) wells from May to June.

Fitch Ratings predicts a 3% increase in CAPEX for U.S. oil and gas companies this year, while rising to 9% in 2022, still below pre-pandemic levels. However, they see an increase in hedging activity at these price points.

The Dow, S&P and NASDAQ are all trading in record territory today after falling last Monday amid coronavirus fears. Positive economic signals are boosting the future outlook for energy demand. Meanwhile, the US dollar is slightly higher, which may be dampening oil prices to some extent.

Natural gas continues to trade at traditionally wintery levels as weak replenishment, record heat and increased LNG demand in Asia, Latin America and Europe all generate bullish sentiment. August natural gas yesterday broke the critical resistance level of $ 4, a price not seen since October 2018. Prices today continue to trade above that mark until February 2022. The Weekly Report on the EIA’s natural gas storage showed an injection of 49 billion cubic feet (Bcf) compared to Analysts’ forecasts point to a gain of 45 Gcf and the five-year average of 36 Gcf. Stored natural gas now stands at 2.68 trillion cubic feet (Tcf), 16.6% below last year and 6% below the five-year average. At present, the market would need an average injection of around 88 Gcf per week to reach 4 Tcf by the start of next winter. Natural gas supplies remained stable at 92.9 Bcfd last week. Total demand was 89.8 Bcf / d, down from 89.2 Bcf / d the previous week, the main decline coming from the power generation sector. Exports to Mexico were 6.3 Bcf / d while LNG exports were slightly less than 10.4 Bcf / d.

Barani Krishnan, Senior Raw Materials Analyst, There were two surprises: the first was ‘Black Monday’, where crude prices fell 7% – the most for a day in 16 months – followed by ‘Green Tuesday to Thursday’, where all this loss of one day was recouped over three days.

Assembly area: What were the surprises of the market?

Donnel: It was surprising to see U.S. oil inventories rise for the first time in two months, especially in the midst of the summer driving season, when refinery use and net import levels worked the wrong way. during the week. Despite this, crude inventory levels are lower than the comparable period of 2019 as aggregate demand, and gasoline in particular, remains robust.

Krishnan: A stock market plunge on Monday turned into a broader risk aversion that spared no assets, including cryptocurrencies and even Treasuries. The FOMO (Fear-of-Missing-Out) rally morphed into a massive sell-off of FOGS (Fear-of-Getting-Stuck) which took more than $ 5 a barrel of WTI from US crude. The first major announcement of an OPEC + production increase in months added to the stock market trigger, where the alliance of producers from 23 countries was expected to add 2 million barrels over the next five months.

But in the true nature of the oil Kool-Aid bull mob, all of those market losses were reversed by Thursday’s close, with WTI buzzing happily at over $ 71 a barrel despite the Energy Information Administration. reported the first build-up of U.S. crude in nine weeks. . Gasoline draws also hit about 121,000 barrels last week, from an expected drop of 1.04 million, the EIA said.

Despite the comeback rally, what doesn’t change from here is the increased attention that will be given to new cases of Covid via the Delta variety which are increasing in many parts of the world, including in the States. -United.

With demand for gasoline expected to decline slowly but steadily over the next eight weeks, all eyes will be on where the pandemic is at this point and how businesses will reopen to work in the fall. A return of over 60% of staff to the office will be ideal for travel and the transportation fuels needed to drive them. Any prolonged concern about the pandemic, followed by work-from-home orders, certainly can’t be too bullish for oil. At this point, OPEC + could again be forced to recalibrate the supply, regardless of the notion of “tight oil” which had been overplayed for months now.

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Felix J. Dixon