The oil price “continues to rise”, as we can read in some German media today. Well, we would like to say. Because if we take a look at the following chart, which shows the development of the WTI oil price since last Thursday, then the market has been fighting for the 50 Dollar mark since the beginning of the week. If we take last night’s prices at an even 50 Dollars, then we can now see a plus of 73 cents at the current 50.73 Dollars. But in the big picture, where the market has fallen dramatically for weeks from 65 Dollars at the beginning of January to below 50 Dollars, these few cents are rather a small upward puddle, a small technical upward twitch. Some media are currently citing the fact that the growth in new coronavirus infections is slowing down as the reason for this mini-rise.
Oil price reacts only marginally to API data
Let’s take a look at the API data for crude oil inventories in the USA announced at 10:30 pm last night. Inventories increased by 6 million barrels. The oil price dropped by just 17 cents to $49.83 immediately afterwards, only to rise again shortly thereafter. Overnight, a rise to 50.73 Dollars, as we said before, has so far been achieved in WTI oil. So the market has ignored the significantly rising inventories. Today at 4:30 pm, the official government inventory data from the “Energy Information Administration” in the USA will be reported. Already in the last two weeks there have been increases of more than 3 million barrels each. Is it continuing today? As a tendency, rising inventory levels indicate a falling oil price (too little demand, too much supply, or both). And ohhh wonder, where could the rising inventories come from? Probably from the coronavirus, which is causing demand in China to collapse.
Forecast for decline in demand
And the same agency that reports the official inventory levels for the USA this afternoon has just released forecast data on the oil market. Compared to a previous January forecast, the forecast for global demand volume has been lowered by 0.9 million barrels per day for the current quarter due to the coronavirus and warmer temperatures than usual in January in northern consuming countries. For the full year 2020, the demand growth forecast is lowered from 1.3 to 1.0 million barrels per day. Less demand would thus argue for a falling oil price. So supply has to be cut back, right?
Oil price on hold, waiting for Russia to decide
We had already discussed it on Monday. And even today the suspension continues. OPEC is relatively unanimous that they want to further reduce the production rate for oil significantly, probably by 600,000 barrels per day. This is intended to compensate for the weak demand from China (due to the coronavirus). But Russia simply hasn’t wanted to say anything for days now about whether or not to participate in a further reduction. A technical committee of OPEC had officially recommended extending the already ongoing cut until the end of the year. On top of that, the technical committee of OPEC had recommended that further additional “adjustments” of the production volume until the end of the 2nd quarter were appropriate. Well, Russia has still not decided whether to go ahead or not. They want to analyse the recommendations of the OPEC committee.
Allegedly, Russia’s Energy Minister Novak will meet today with representatives of Russian oil companies. So are there any signals from Russia today or tomorrow? If they jump on the train and give their YES for a further cut, can the price of oil rise? Or would a cut of 600,000 barrels a day simply be too little in the eyes of the market? You might even be disappointed and the price of WTI oil rushes below the 50 Dollar mark? This is exactly the question the market is currently facing.