Oil jumps to new highs on stock relief projections
Oil prices are enjoying their highest levels in more than two years today, as a projected draw-down of US crude inventories caused price gains of more than $1 in a single day
By Louise Dickson, Oil Markets Analyst, Rystad Energy
As a result of API’s massive oil stock draw projection for last week, oil traders felt that the oil demand recovery caught them by surprise, speeding up ahead of what the market expected.
The market uproar that the projected 7.2 million barrel surprise draw brought, caused a serious repricing run for both Brent and WTI, which explains the day’s significant gains.
Whether or not the actual EIA data today lives up to the bullish API forecast, the US is on track to recover to pre-pandemic refinery utilization, as downstream players generally ramp up runs ahead of the busy driving season that peaks in August.
The inventory relief could provide another reason for the OPEC+ alliance to boost production further from August and the coming meeting next week is expected to be material for policy and prices going forward.
The oil price is trending up despite what should be some show-stopping news out of Russia, where the third wave of Covid-19, which appears to mostly be driven by the Indian Delta variant, has brought cases and deaths in the capital city of Moscow to all-time highs.
Russia is the latest case study of the carnage a new variant of Covid-19 can bring to a country with a low vaccination rate, which in Russia, is only 13%.
The human tragedy is already apparent, and even those vaccinated with Sputnik are falling prey to the Delta variant, meaning even a ramp-up in the vaccination effort may not be able to fully deflect the third wave of cases.
Many of the larger cities, such as Moscow, are rolling out extremely restrictive measures to nip the spread of the disease, from requiring vaccination QR-codes to enter restaurants and suspended air travel with several countries until at least 28 June 2021.
So far, the effect on oil demand in Russia appears to be marginal, as road activity is already above pre-pandemic levels, with road fuels demand at approximately 1.2 million bpd.
Aviation activity has also been rather immune to Covid-19. Even though international travel is only at about 45% of pre-Covid-19 levels, much of the market has been absorbed by domestic travel, which is at 125% of pre-pandemic levels.
Russian jet fuel demand is less than 180,000 bpd per day, so we do not expect a shocking dent to materialize on global oil prices.
The lesson here is that while the oil demand impact in Russia may not be material, a repeat of a severe outbreak of the Delta variant in a country with a low vaccination rate and worse health infrastructure than Russia could trigger more downside risk to oil prices in the near-term.
Traders seem to ignore another bearish signal today, coming from Iran.
Iran said there is an agreement with the US to lift sanctions that currently block Iranian oil barrels from reaching the global market, but the market took the news with a pinch of salt.
Traders didn’t want to jump the gun and cut oil price gains, waiting for an official confirmation from the West that indeed sanctions will be lifted.
European government officials called for caution as reviving the nuclear deal with Iran is still not yet a done deal, which also explains the muted market reaction.
If indeed sanctions get lifted and Iran is free to boost production and exports, this may cause a price reaction, but still the growing demand will absorb the extra barrels and prices will not experience any major shock.
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and...
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Oil jumps to new highs on stock relief projections
Oil prices are enjoying their highest levels in more than two years today, as a projected draw-down of US crude inventories caused price gains of more than $1 in a single day
As a result of API’s massive oil stock draw projection for last week, oil traders felt that the oil demand recovery caught them by surprise, speeding up ahead of what the market expected.
The market uproar that the projected 7.2 million barrel surprise draw brought, caused a serious repricing run for both Brent and WTI, which explains the day’s significant gains.
Whether or not the actual EIA data today lives up to the bullish API forecast, the US is on track to recover to pre-pandemic refinery utilization, as downstream players generally ramp up runs ahead of the busy driving season that peaks in August.
The inventory relief could provide another reason for the OPEC+ alliance to boost production further from August and the coming meeting next week is expected to be material for policy and prices going forward.
The oil price is trending up despite what should be some show-stopping news out of Russia, where the third wave of Covid-19, which appears to mostly be driven by the Indian Delta variant, has brought cases and deaths in the capital city of Moscow to all-time highs.
Russia is the latest case study of the carnage a new variant of Covid-19 can bring to a country with a low vaccination rate, which in Russia, is only 13%.
The human tragedy is already apparent, and even those vaccinated with Sputnik are falling prey to the Delta variant, meaning even a ramp-up in the vaccination effort may not be able to fully deflect the third wave of cases.
Many of the larger cities, such as Moscow, are rolling out extremely restrictive measures to nip the spread of the disease, from requiring vaccination QR-codes to enter restaurants and suspended air travel with several countries until at least 28 June 2021.
So far, the effect on oil demand in Russia appears to be marginal, as road activity is already above pre-pandemic levels, with road fuels demand at approximately 1.2 million bpd.
Aviation activity has also been rather immune to Covid-19. Even though international travel is only at about 45% of pre-Covid-19 levels, much of the market has been absorbed by domestic travel, which is at 125% of pre-pandemic levels.
Russian jet fuel demand is less than 180,000 bpd per day, so we do not expect a shocking dent to materialize on global oil prices.
The lesson here is that while the oil demand impact in Russia may not be material, a repeat of a severe outbreak of the Delta variant in a country with a low vaccination rate and worse health infrastructure than Russia could trigger more downside risk to oil prices in the near-term.
Traders seem to ignore another bearish signal today, coming from Iran.
Iran said there is an agreement with the US to lift sanctions that currently block Iranian oil barrels from reaching the global market, but the market took the news with a pinch of salt.
Traders didn’t want to jump the gun and cut oil price gains, waiting for an official confirmation from the West that indeed sanctions will be lifted.
European government officials called for caution as reviving the nuclear deal with Iran is still not yet a done deal, which also explains the muted market reaction.
If indeed sanctions get lifted and Iran is free to boost production and exports, this may cause a price reaction, but still the growing demand will absorb the extra barrels and prices will not experience any major shock.
Staff Writer
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and... More by Staff Writer
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