Oil prices: this week’s rally is built on shaky ground

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Major oil producers and the International Energy Agency (IEA) are lowering their demand forecasts, saying the coronavirus resurgence in Europe and the United States is once again weighing on fuel consumption.

The IEA said on Thursday it now expects demand for oil to decline by 8.8 million barrels per day this year, compared to its forecast last month of an 8.4 million reduction barrels. It has downgraded demand forecasts for the second half of this year and the first quarter of 2021.

“The vaccines are unlikely to significantly boost demand until the start of next year,” the Paris-based group said in a report. He expects demand to increase by 5.8 million barrels per day next year, 300,000 barrels per day more than his previous forecast. This will leave global consumption still well below levels seen before the pandemic collapsed demand for jet fuel and gasoline.

Preliminary data showing that a potential Covid-19 vaccine developed by Pfizer and BioNTech is highly effective pushed Brent futures above $ 45 a barrel earlier, their highest level in more than two months, while traders bet that a vaccine would stimulate economic activity and encourage a return to travel. Brent was around $ 44 a barrel Thursday, with West Texas Intermediate, the US benchmark, trading at $ 41.50 a barrel.

But a second wave of coronavirus lockdowns across Europe and the threat of further restrictions in the United States could delay economic recovery and depress demand for oil. As recently as last week, oil prices slipped amid fears that major economies would contract in the fourth quarter.

“In our view, oil prices are capitalizing on the latest leg in a soon-to-be-wiped vaccine rally, as the fundamental realities begin to emerge,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said on Wednesday. . .

“The problem is that the acceleration in demand will not happen just because of the positive news of vaccine trial results – it is the lockdowns that must succeed in containing the spiral of Covid cases,” he added.

Oil prices tumble as lockouts fuel recession fears

The Organization of Petroleum Exporting Countries (OPEC), which includes Saudi Arabia, said on Wednesday that weaker-than-expected demand in the U.S. transportation sector and lockdowns in Europe would hurt crude. “The recovery in oil demand will be severely hampered and stagnation in demand for transport and industrial fuel is now expected to last until mid-2021,” the group said.

He expects global oil demand to contract by around 9.8 million barrels per day this year, before growing 6.2 million barrels per day next year, a downward revision compared to last month’s assessment.

For now at least, oil prices are holding up in the hope that OPEC and its allies, including Russia, will curb planned increases in supply. “There have been many indications from Saudi Arabia and Russia – the de facto glue of the oil extraction alliance – that it will be possible to delay production increases. [of 2 million barrels a day] from January 2021, ”said Tonhaugen from Rystad.

Discussions among OPEC members suggest the group could postpone the planned unfolding of production cuts by about three to six months, Commerzbank analysts said. But that won’t be enough to prevent oversupply, especially given the surge in production in countries that have not agreed to cuts, like Libya, they said in a research note Thursday. Oil prices face a “fundamentally unfavorable environment”, they added.

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