Weekly Recap: Oil Prices Dip on Sluggish Demand Recovery, Oversupply Concerns
Global crude oil prices fell this week after two consecutive weeks of gains, on concerns of rising crude oil supply and a slowdown in demand recovery around the world as the Covid-19 pandemic persists.
The Brent crude contract for October delivery declined 1% this week to US$44.35 per barrel (/bbl), while the near-month contract for U.S. WTI crude fell 0.8% to US$42.34/bbl, after hitting a five-month high last week.
The number of initial unemployment claims in the U.S. rose to over 1 million in the week ended August 15th, while the country’s crude oil inventories declined less than expected in the same week. Data published by the EIA on Wednesday showed that U.S. crude inventories fell by 1.6 million barrels, falling short of the 2.7 million barrel mark expected by industry analysts, according to a Reuters poll.
Despite having eased production cuts this month, OPEC and its allies are considering additional cuts for some members to make up for non-compliance with production cuts in previous months and to mitigate the current oversupply. OPEC may require countries such as Iran and Nigeria, who failed to meet the reduction targets between May and July, to implement compensatory cuts and decrease their production by as much as 2.31 million bbls/d in August and September.
The IHS Markit Flash Composite Purchasing Managers’ Index (PMI) for the Eurozone declined to 51.6 in August, indicating economic activity has slowed again across the region. The PMI stood at 54.8 in July, up from 48.5 the previous month. Rising Covid-19 cases in some parts of Europe are also contributing to the bearish sentiment on oil prices.
In India, the world’s third-largest importer and consumer of crude oil, government data showed that oil imports in July fell to the lowest levels since March, as lockdowns persist in many parts of the country and several major refineries close for maintenance. The country reported its highest one-day spike in the number of Covid-19 cases on Friday, with nearly 70,000 new cases of the infection being reported by government agencies, even as experts suggest that the actual case numbers are much higher than those being officially reported.
The number of total Covid-19 cases reported around the world has increased by at least 1.2 million this week, according to data shared by the W.H.O. Industry analysts expect that the continued disruption to business activity and international travel from Covid-19, especially with major world economies such as the U.S., Brazil and India still at high risk of further waves of infection, is likely to keep oil prices range bound between US$40 and 45/bbl over the coming weeks.