Oil rises but bleaker demand outlook weighs

Daniel Fowler
September 17, 2020

OPEC, in its ‎monthly market report for September, which was released on Monday, ‎projected that consumption will rise in 2021 by 6.62 million barrels per day, ‎ 370,000 bpd less than expected last month.

"Crude oil prices at the current scenario are more sensitive to the demand factor than supply.The second wave of COVID-19 may result in shutdown in economic activities once again, which can drag down prices", said Tapan Patel, a senior analyst at HDFC Securities.

The American Petroleum Insitute (API) reported that USA crude inventories declined by 9.5 million barrels for the week ended September 11.

India-the third largest consumer of crude oil globally-has seen daily cases rise exponentially since restrictions have been eased.

In its monthly report, the organisation said it expected world oil demand to fall by 9.46 million barrels per day (bpd) this year, more than the 9.06 million bpd decline expected a month ago.

"As much as a feel-good factor appears to have returned to the oil market, underlying fundamentals remain far from supportive".

Demand during seven months between January and July averaged 10.5m bpd below the levels seen previous year.

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OPEC and its allies will discuss the gloomier outlook for demand and rising inventories when its joint ministerial monitoring committee meets later this week online.

With demand for oil faltering since the outbreak of COVID-19 earlier this year, the market had been hoping for a gradual recovery by the end of 2020. This is a contraction of 8.4 million barrels per day year-on-year, more than the 8.1 million barrels per day contraction predicted by the agency in its August report.

The prices of both benchmarks - West Texas Intermediate and Brent - have dropped by more than 12% in September due to a combination of stalling demand and price cuts from major producers, some of whom have been increasing production.

The US supply picture remains mixed, despite stockpiles of gasoline falling for a sixth week and crude dropping by 4.4 million barrels.

"Crude oil output increased mainly in Saudi Arabia, UAE, Kuwait, Algeria and Angola, while production decreased primarily in Iraq", a target="_blank" href="https://www.opec.org/" OPEC /a said, in the report. "The economic recovery will continue globally, albeit unevenly, and if OPEC+ stays the course the market will re-balance, deflating excess inventories built during the first half of the year".

Refiners worldwide have been cutting processing due to weak overall demand and an abundance of crude. More than a quarter of U.S. offshore oil and gas production was shut and key exporting ports were closed as the storm's trajectory shifted east toward western Alabama, sparing some Gulf Coast refineries from high winds.

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