Oil prices recovered into the weekend and if there was a glimmer of optimism – both for oil and the virus – on Friday, it was the remdesivir news. But it’s still torturous to try and dig out from under those record US virus case counts that seem to be rising by the day.
Even medium-term oil bull zealots must give way to the market’s short term trading sensibilities and proclivities.
Trading ranges continue to narrow as exchange volumes dwindle. Yes, they’re summer markets, but they also reflect that no one seems to have much conviction on anything right now. It’s the definition of a vicious circle: the more uncertainty grows, the less activity picks up as we remain stuck in the “only trade if you have to” environment. Moves that do occur tend to get magnified or blown out of proportion. The perfect example was the significant move down on Friday, despite the fact there had been something of a de-coupling of the market and pandemic effects of late. It doesn’t take much for the snowball effect to set in when markets are thinly traded.
Assuming the favorable overtones from virus headlines fade to an extent (and it’s still a crystal ball trade), based on what we do know, July could be a shaky month for oil.
The recent surge in coronavirus infection numbers in the US and elsewhere have brought demand risk back into focus. The planned easing of OPEC+ production cuts next month after a one-month extension of the initial phase of the production cut plan, and a potential rebound in US production, could add pressure on the supply side of the equation. Factoring in Libya lifting the force majeure, it adds another unwanted level of supply-side uncertainty at an extremely critical point in the oil price recovery phase.
While the evidence suggests we’re past the trough for oil and that supply and demand are rebalancing, near-term headwinds remain as the short-term fundamentals are about as muddy as possible.
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