The oil market is getting mixed signals this week, but concerns over the recovery of oil demand are prevailing today, trimming prices.
Although traders found the latest Fed minutes encouraging, as they signaled a brighter economic outlook and accommodative monetary policy, attention quickly turned to how oil demand is actually developing in the immediate market.
Seeing US gasoline stocks rising by 4 million barrels last week caused some wows on trading floors as a boost in gasoline demand was expected due to Easter holiday mobility.
A huge build in road fuel stocks is not what the market was expecting and concerns over the speed of the oil demand recovery resurfaced, leaving traders wondering how stable road fuel usage actually is.
Oil stocks is not the only concern today though. Yesterday’s news that the AstraZeneca vaccine is linked to blood clots and recommendations to avoid its usage for the under-30s raised some flags for the speed of the vaccination campaigns and consequently the speed of the overall recovery of oil demand.
It is still early to assess if the AstraZeneca vaccine usage will be much affected by the news, and a more definite outlook can be formed after the dust settles within a few days, monitoring reactions by the nations that use the vaccine.
Europe is a prime user of the AstraZeneca vaccine and any delays or pauses in the vaccination campaigns could partly postpone the oil demand recovery in the continent. Europeans hope to lift regulations and lockdowns in the summer, but in the end it will all depend on inoculation levels.
On the supply side, the focus has also shifted towards US-Iran negotiations as OPEC+ has given sufficient forward guidance for the coming three months.
Iran is exporting stealth barrels in increasingly creative ways over the past months, but the 1.6 million bpd of unused oil production capacity in the country would hinge upon a full removal of US sanctions and establish itself as a untainted base load supplier of oil to the market again.
This won’t happen anytime soon, and Vienna talks seem toothless given the impossibility of the starting point of the discussions, where Iran demands full removal of sanctions before any real negotiations on the nuclear enrichment takes place.
Oil prices will therefore most likely be dictated by developments on the demand and macroeconomic side going forward. In Asia, concerns about India’s worrying Covid-19 trends are dominating. Further lockdowns in India are imminent and threaten the oil demand recovery in the world’s third largest consumer of oil.
The impact of restrictions is already visible on traffic levels in India, and we already see a 200,000 bpd drop in its daily road fuel demand compared to the start of April.
Markets can expect more oil price stability once the AstraZeneca vaccine hiccup dust settles.
Nevertheless, and amid a certain OPEC+ output policy for the next three months, the direction of oil storage levels and the number of Covid-19 infections will continue to be the prime trading decision makers going forward.
