Oil Dips On Covid Restrictions But Stock Draws Ease Losses

by Ship & Bunker News Team
Thursday October 15, 2020

Crude traders' new found bullish sentiment proved to be shaky on Thursday in the face of some European countries reviving restrictions to combat surges in Covid-19 infections - thus stoking the fear that they will also impede demand recovery.

However, resulting crude price declines were minimized thanks to the U.S. Energy Information Administration reporting an increase in U.S. petroleum demand last week as well as distillate inventories dropping by the most since 2003 as Hurricane Delta cut oil production and shut refineries.

Brent fell 16 cents to settle at $43.16 per barrel, while West Texas Intermediate fell 8 cents to settle at $40.96.

Robert Yawger, director of energy futures at Mizuho, remarked, "The [EIA] report halted the [price] slide, which was threatening to turn into an avalanche earlier this morning."

With the demand outlook remaining uncertain, there is a belief that the OPEC+ nations may call off its 2 million bpd production increase planned for January.

Still, top traders including Vitol, Trafigura, and Guvnor believe demand recovery will continue be slow and that oil prices will rise to or above $50 per barrel only by October next year.

Further ahead, prices could then spike in 3-5 years because of significant under-investments in oil production, meaning now may be an attractive "tactical" time to invest in upstream.

Still widespread pessimism about demand continues and is hardly confined to the west: Vitaly Dokunikhin, chief executive officer at Eriell Russiatold media that his nation's producers, which have reduced oil drilling by as much as one-third so far this year, may cut it by a further 20 percent in 2021.

To support the beleaguered sector, Russia's energy ministry has drafted a plan to drill about 2,700 unfinished wells until April 2022, which would be ready for operation upon expiry of the Organization of the Petroleum Exporting Countries' (OPEC) cutback deal, thus helping to speed up the recovery of production capacity.