Oil Prices Hits 5-Month High, Supply Increases Expected to Dampen Rise
Global crude oil prices rose to the highest level since early March yesterday, after the U.S. Energy Information Administration (EIA) reported a significant decline in U.S. crude inventories. However, the oil demand outlook continues to be muted as Covid-19 cases increase around the world and several countries face the threat of a second wave of infections.
According to the EIA’s Weekly Petroleum Status Report released on Wednesday, U.S. crude inventories fell by 7.4 million barrels (MMbbls) to 518.6 MMbbls in the week ending July 31st. The WTI crude oil contract for near-month delivery rose 1.18% on Wednesday to US$42.19/bbl in reaction to the news. The Brent crude contract for October delivery also rose to as high as US$46.23 per barrel (/bbl), and closed up 1.67% at US$45.17.
Crude oil prices have been further supported by the weakening U.S. dollar, and reports that the U.S. government is making progress on the development of another economic aid package that will help bolster the economy. The U.S. Dollar Index, which measures the value of the dollar against a basket of six other major international currencies has declined around 10% since its 2020 peak of 102.99 in March, and is currently trading at approximately 93.0.
Despite the recent rise, oil prices are expected to weaken later this month as OPEC and its allies start to ease production cuts, while U.S. domestic oil production is also expected to recover further this month. Global oil demand also continues to come under pressure from the continued economic impact of Covid-19 pandemic, which has now infected approximately 18.8 million people worldwide, with the U.S., Brazil, Mexico and India leading the rise in cases and fatalities.