The bank dismisses media assertions that falling oil prices reflect a stalled demand recovery: File Image/PixaBay
The perception that human activity is declining due to rising Covid infections rates in some parts of the world continued to affect crude trading on Friday, and even though the commodity eked out a price gain it still posted its first back-to-back weekly loss since April's rout.
The build earlier this week in U.S. inventories along with the end of the summer driving season was also said to influence trading: "Oil by-and-large has not had a mind of its own this week," said Michael Hiley, head of over-the-counter energy trading at LPS Futures, adding that there are also "lingering concerns that demand will drop off because everybody's working from home and not many people are travelling."
Brent on Friday declined 23 cents to $39.83 per barrel, while West Texas Intermediate settled up 3 cents at $37.33; for the week both benchmarks declined more than 6 percent.
Andrew Sheets, Morgan Stanley
We still think the global economic picture is strong
But not everyone is convinced that the numbers reflect a global economic slowdown: Andrew Sheets, chief cross-asset strategist at Morgan Stanley, told Bloomberg television on Friday that "What you see across commodities is that the supply dynamics really differ...the challenge oil has is that as soon as you move up around $40 per barrel you have increased incentives for U.S. shale producers to hedge and it's probably harder for OPEC [the Organization of the Petroleum Exporting Countries] to push for its members to keep cutting supplies."
Sheets went on to note that the recent oil price losses are not indicating a global economic slowdown but instead strictly reflect supply issues, "because the other economic data we follow, that all still looks pretty good; we still think the global economic picture is strong."
Indeed, positive economic news since the easing of the government-imposed Covid lockdowns earlier this year has been consistent, including this week despite crude traders worrying about the virus, with news on Friday alone showing better-than-expected corporate earnings and increased M&A activity in Europe.
As for the latest vaccine developments, Russia's sovereign wealth fund said on Friday that more than 1 billion people would receive its vaccine Sputnik-V in 2020-21.
But even a cure to the pandemic isn't immune to analytical worry: while a vaccine will undoubtedly revive global travel and return crude to a healthy supply and demand balance, Jay Pelosky, co-founder of TPW Investment Management (which believes a vaccine is imminent in the next few months), on Friday said it will be "Kryptonite" for tech stocks.