Current And Anticipated Soaring Demand Leads To More Price Gains For Crude

Market improvements also cause OPEC to plan on easing production cuts: File Image/PixaBay

Demand for oil in the U.S. continues to grow despite hand-wringing by media and health officials over rising coronavirus rates: that fact was made clear again on Wednesday with reports of a sharp decline in crude inventories, which resulted in price gains for the commodity of 2 percent.

Prices were also supported by promising data for one of many Covid vaccines; however, the gains were capped not by virus concerns, but by the Organization of the Petroleum Exporting Countries (OPEC) set  to ease supply curbs from August, as the global economy gradually recovers.

Brent crude was up 75 cents, or 1.75 percent, at $43.65 per barrel, and West Texas Intermediate crude rose 80 cents, or 2 percent, to $41.09 per barrel.

According to the Energy Information Administration, U.S. crude inventories fell 7.5 million barrels last week, compared with analysts' expectations in a Reuters poll for a 2.1 million-barrel decline, and this disclosure prompted Phil Flynn, senior market analyst at Price Futures Group Inc., to remark, "The story of the report is we will see more draws in the coming weeks.

"We will see tightening of supplies and the market is signalling that we are going to need more oil pretty soon, probably by August."

The economic recovery in the wake of government mandated lockdowns earlier this year in response to the coronavirus also coaxed OPEC into tapering its cuts after July to 7.7 million barrels per day (bpd) from 9.7 million bpd until December.

For his part, Alexander Novak, energy minister for Russia, on Wednesday said the global oil market is now balanced and stable, and he added that a partial restoration of production would benefit the market.

The optimism is based on OPEC forecasting that global demand will soar by a record 7 million bpd in 2021: "This assumes that Covid-19 is contained, especially in major economies, allowing for recovery in private household consumption and investment, supported by the massive stimulus measures undertaken to combat the pandemic," the cartel stated.

The lingering concern for analysts is the rising infection rates in the U.S., which have already caused government to reimpose some economic restrictions; however, it was learned earlier this week that Florida's infection data was grossly inflated due to the omission of negative test results, and this along with a perceived lag in the Centers for Disease Control and Prevention processing Covid data led the White House on Wednesday to order that all daily patient information be sent directly to  a central database operated by the Department of Health and Human Services.

Michael R. Caputo, a Health and Human Services spokesman, said the CDC will still participate in the processing, "They will simply no longer control it."

Meanwhile, adding to the debate in the U.S. of returning kids to school (a crucial factor in reviving the economy, as parents will then be free to return to work) was a blood sample study of 2,045 children and teachers in Germany showing that only 12 samples were found to contain antibodies against Covid-19 - which in turn demonstrates that schools and young people do not play as big a role in transmission as previously feared.

Former Stanford neuroradiology chief Dr. Scott Atlas said, "Of course, we can [reopen schools]: everyone else in the world and the western world, our peer nations are doing it; we are the outlier here."

However, crude analysts and traders should expect more arguments to the contrary and the media to make the most out of bad coronavirus news in the U.S., as that country heads closer towards the November presidential elections.

As for the vaccine news that caused Wednesday's crude gains, researchers reported the findings from the first 45 healthy adults who received Moderna Inc's experimental vaccine in March, which showed it provided a hoped-for immune boost.

The volunteers developed neutralizing antibodies in their bloodstream – the key to blocking infection – at levels comparable to those found in people who survived Covid-19, the research team reported in the New England Journal of Medicine.