More Promising Economic Data Sways Crude Traders, Causes Price Uptick

But OPEC warns of continued uncertainty ahead: File Image/PixaBay

With falling U.S. oil inventories being the latest in a series of signs that the economy continues to recover from the government-imposed virus lockdowns, suddenly optimistic traders on Wednesday caused crude prices on Wednesday to rise by over 2 percent.

The Energy Information Administration reported that fuel demand rose to 19.37 million barrels per day (bpd) last week, the highest since March, while crude inventories fell by 4.5 million barrels, compared with analysts' expectations for a 2.9 million-barrel drop.

Andrew Lipow, president of Lipow Oil Associates, remarked, "The most surprising statistic was the decline in oil production by 300,000 bpd at the same time that we've been hearing producers talking about restoring production; that's going to give more support to crude oil prices for the balance of the year."

For Wednesday, Brent settled up 93 cents, or 2.1 percent, at $45.43 per barrel, while West Texas Intermediate ended $1.06, or 2.6 percent, higher at $42.67 per barrel.

Still, the overall sentiment in the energy industry remains pessimistic, and this was reflected in the Organization of the Petroleum Exporting Countries' (OPEC) monthly report released Wednesday, in which the cartel predicted world oil demand will fall by 9.06 million bpd this year, more than the 8.95 million bpd decline expected a month ago.

It added that demand would rebound in 2021 by 7 million bpd but warned that this was subject to large uncertainties that may result in "a negative impact on petroleum consumption."

Meanwhile, sources told media that given the uncertain climate, Saudi Arabia's state oil company Saudi Aramco plans to cut capital expenditures to $25 billion or less next year, about half the amount it was originally planning - and will therefore still be able to pay shareholders a reported $75 billion dividend.

On a more positive tack, Ron Smith, senior oil and gas analyst at BCS Global Markets, on Wednesday provided supportive words for those in the oil sector: "The question is, in the near term, call it five to 10 years, is anything on the horizon that can meaningfully replace oil as a transportation fuel? I have my doubts, let's put it that way.

"I think the idea that we are facing the imminent demise of Big Oil, or oil period, is probably overstated."

As for hope on the pandemic front, following Russia's announcement that it had approved a vaccine for dissemination in October came a report that drugs that deliver antibodies to fight the virus immediately - without training the immune system to make them - are undergoing widespread testing and may be available very soon; Atlanta-based infectious disease specialist Dr. Marshall Lyon said these drugs "would be a really momentous thing in our fight against Covid."