Large Inventory Build Causes Oil Price Slip, But Analysts Still Bullish On Full Recovery

The concern that perpetually worries oil traders - that of rising inventories - was the chief cause of crude prices on Tuesday slipping even though the commodity had earlier been buoyed by reports from the White House that the U.S. trade agreement with China was intact.

According to the American Petroleum Institute, U.S. crude inventories rose by  expected 1.7 million barrels last week compared to expectation of a 300,000 barrel build, and this caused Brent to slip 45 cents to $42.63 per barrel; West Texas Intermediate fell 36 cents to $40.37.

Trading was also said to have been negatively affected by U.S. purchasing managers reports, which showed the country's rebound from the government-mandated coronavirus lockdowns was not as dramatic as in Europe.

Edward Moya, senior market analyst at OANDA, chose to look at the positive side of Tuesday's trading activity, noting that "Oil prices need a healthy relationship between the U.S. and China."

Nordic bank SEB also struck an optimistic chord by stating in a note, "Looking at the strength of the physical market and recovering global oil demand, we think that the crude oil price is still on its way higher."

Indeed, Bank of America Global Research raised its 2020 oil price forecast, pegging Brent to average $43.70 per barrel compared to a previous estimate of $37.

The outlook is equally upbeat in Europe where physical oil prices are steadily rising, thanks partly to Russia curbing its exports to multi-year lows; "The market looks to be in full recovery mode," said Eugene Lindell, senior analyst at JBC Energy GmbH.

He added that output cuts from major producers and a demand rebound are "just what the market needs to drown storage and re-balance."

Now that so many countries have eased or eliminated their lockdowns - most recently and notably in the UK, where no less than eight London city airport routes restarted this week - the rebound theoretically should continue to gain momentum.

However, it was disclosed on Tuesday that the European Union may initially exclude Americans from visiting their member states next month due to their country's handling of the coronavirus (where the daily rate of infections is 27,000 compared to the EU's 4,000).

Tuesday also saw the usual positive stories on COVID that failed to make front page headlines, including the U.S's Dr. Anthony Fauci declaring that a vaccine will be ready either by the end of this year or early next and that it's "when and not if."

Also, Brazil became  the first country outside of the UK to begin human trial testing of the vaccine developed by Oxford University and said to be one of the most promising contenders in eradicating the disease.

Finally, a new study by Jose-Luis Sagripanti and C. David Lytle published in Photochemistry and Photobiology shows that COVID should be inactivated "relatively fast" during the summer in many cities worldwide due to summer sunlight inactivating 90 percent or more of the virus.

The authors noted that given their findings, the government-imposed stay-at-home orders forcing people to remain indoors might have increased contagion among members of the same households: "In contrast, healthy people outdoors receiving sunlight could have been exposed to lower viral dose with more chances for mounting an efficient immune response."