Oil prices opened the day swinging from losses to gains, as traders were undecided over what moved the market more, an expected crude stocks build in the US, or positive signs from gasoline and diesel demand.
Moving through the day and with the realization that the Covid-19 cases count is accelerating, worries over a new wave of the pandemic prevailed and depressed prices, assisted by the stocks build forecast.
If the pandemic triggers a second round of lockdowns, storages will struggle to accommodate the unused oil and the gasoline uptick that we currently see will be scrapped if new travel restrictions are put in place.
The WHO reported worrying rises in new cases in Latin America, especially in Brazil. Also, the US, China, and South Korea are experiencing new outbreaks. Yesterday, during a congressional testimony, Dr. Anthony Fauci, America's top infectious disease expert, warned that there had been a "disturbing surge of infections". This adds to concerns that the pandemic has not been contained and can have consequences in oil markets.
WTI in particular headed down moderately as the American Petroleum Institute (API) reported that US commercial stockpiles rose 1.7 million barrels. This comes on top of the DOE report on Monday that SPR inventories ticked up 2.0 million barrels to nearly 654 million barrels. The API report is in line with our call for a nearly 1.0 million barrels build in US commercial stockpiles, supported by the recovery of nearly 500,000 bpd of production in the Gulf of Mexico that was shut down by the Tropical Strom Cristobal during the previous week.
Brent’s decline is not as deep as WTI’s, as enthusiasm that a demand recovery is still under way and that supply is curbed sufficiently still support the market and the current price level close to the 40+ dollar mark.
