But the suddenly bearish sentiment is unjustified, says Flynn: File Image/Pixa Bay
Less than a day after the U.S. posted strong manufacturing numbers and crude stock draws, traders' optimism on Wednesday was dulled by numbers showing lower gasoline demand from a week earlier - and as a result, Brent fell $1.15 to settle at $44.43 per barrel, and West Texas Intermediate settled lower by $1.25 to $41.51 per barrel.
Government data revealed that gasoline demand in the previous week dropped to 8.78 million barrels per day (bpd) from 9.16 million bpd a week earlier, and this was enough for traders to ignore a bigger and considerably more upbeat finding: that crude inventories fell by 9.4 million barrels in the same time period to 498.4 million barrels, a far steeper dive than the 1.9 million-barrel drop predicted by analysts.
For his part, Phil Flynn, senior market analyst at Price Futures Group Inc., was dismayed by trading behaviour on Wednesday: "The market is trying to dismiss the number as a storm-related one-off; while [Hurricane Laura] may have exaggerated the numbers, it doesn't justify the amount of the sell-off that we got."
Phil Flynn, senior market analyst, Price Futures Group Inc.
The market is trying to dismiss the number as a storm-related one-off
Wednesday's sell off was said to have also been prompted by a sudden focus on U.S. private employers hiring fewer workers than expected for a second straight month in August - a disclosure that was reported along with the positive manufacturing data in the previous session.
Even though crude prices have recovered substantially from the historic negative territory it plumbed earlier this year, bearish sentiment is never far removed from analytical outlooks, and a Reuters survey of 43 analysts and economists portrayed demand recovery from the government coronavirus lockdowns as clouded in uncertainty.
They forecast Brent to average $42.75 per barrel in 2020, up from July's $41.50 consensus and compared with an average price of $42.60 so far this year (by contrast, it is expected to average $50.45 in 2021); the WTI outlook rose to $38.82 per barrel from July's $37.51.
Global demand was seen contracting more steeply this year, by between 8-10 million bpd versus July's 7.2-8.5 million bpd consensus.
A somewhat more pragmatic view of what lies ahead for crude - at least in the U.S. - was supplied by John Kemp, commodities analyst for Reuters, who on Wednesday wrote that "The U.S. oil industry probably passed the low point in the current cycle in July and August, with drilling rates set to start increasing from September or October and production turning up from March or April 2021."
In response to the Reuters survey, Harry Tchilinguirian, head of commodity research at BNP Paribas, said, "The market's looking for a catalyst to break out of its recent range....on the bullish side, a positive outcome in phase III COVID-19 vaccine trials that will re-shape expectations around the path of a global economic recovery."
But if trader sentiment hinges on vaccine hopes, then the amount of daily breaking good news on that front adds credence to Flynn's observation that Wednesday's sell-off was unjustified: Britain's health secretary on Tuesday said trials are going so well that a vaccine could be ready by Christmas - and laws would be changed so that European regulators wouldn't have to rubber stamp it.
Also, similar to data in other countries, Britian's Office for National Statistics revealed that the odds of catching Covid-19 in England are about 44 in a million a day, and scientists are insisting that the country should get back to normal.