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Oil gains as the market ignores new Covid-19 cases and corrects earlier losses - Rystad Energy comments

Oil gains as the market ignores new Covid-19 cases and corrects earlier losses - Rystad Energy comments


Traders show some reserved positivity in today’s session. Although oil prices saw some modest gains earlier in the day, the contracts retreated a bit, only to tick up again.

Prices had a good run some days ago and both contracts enjoyed levels above 40 USD. These levels were lost in the last trading sessions as valid concerns about the continuous rise in infections in the US and other key markets weighted in.

The risk is that the high rates of infections can bring back lockdowns and effectively slash demand again. And although road fuel demand seems to show signs of life, the concern fire is getting more fuel by the day.

Texas is halting its reopening plan after a spike in new cases and the US as a total reported a daily record high of new Covid-19 cases.

These news are not taken lightly, and although they don’t maybe currently reflect on the price, they can very well depress prices again.

How can prices move up when cases do, many wonder. The relation between the two is normally negative. The answer is just ‘policy’.

There is a belief in the market that countries will not go back to full lockdown as easily as in the first half of the year due to the economic consequences that such a move would have.

Also, during the first wave, there was concern that the supply side did not recognize the problem. But this concern is not there any more, now there is more trust on OPEC+, with the group showing that it takes production cuts compliance seriously.

Russian Urals export programs for July are being reduced around 40% versus June, suggesting Moscow is truly sincere in upholding its pledge in the OPEC+ agreement.

Elsewhere, laggard members are being pushed to contribute their share of the deal as agreed.

Overall it seems that today the market is overly enthusiastic and ignores the risk that is attached to new record Covid-19 cases. But on a trading floor, a concern does not always translate into a problem, until it becomes one.

Remember for example the crude storage limitations some weeks ago. The issue was ignored continuously by the market until the last trading days of the front-month contract. And then we had the sudden price bungee jump we all well remember. But indications were there all along.

But for what it’s worth, today’s gains could also be a form of price correction by the market to make up for some of the losses it took during the last days.

Read the latest issue of the OGV Energy magazine HERE.

Published: 26-06-2020

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