Oil is declining by more than 8% during the week and pessimism prevails in the market


Oil is declining by more than 8% during the week and pessimism prevails in the market

Oil is declining by more than 8% during the week and pessimism prevails in the market: The Covid-19 epidemic continues to put pressure on oil prices,
especially as the Delta variant spread increases around the world, affecting global demand,
and causing prices to fall sharply, which happened last week.

At the end of the trading week, the West Texas Intermediate light crude price for the October 2021 delivery was recorded on the New York Mercantile Exchange at $61.86 per barrel, while the Brent crude price for October delivery settled at $61.86 per barrel.

Last week’s tally was down 8% and 9% respectively compared to the start of the trading week.

This significant decline shows the extent to which prices are affected by the Covid-19 virus,
and the Delta variant, which is now spreading in many parts of the world. 

Evest follows all developments in the commodity trading markets, especially oil, and relays them to you in the following report. 

Why did oil decline at this significant portion?

The price of crude oil market entered the trading week starting August 16 to August 20 with a pessimistic outlook,
especially as the Delta variant of the coronavirus dominated events, and its impact on supply and production chains.

Many crude oil-consuming countries, such as the United States and China, have reinstated disease prevention and travel restrictions.

The intense summer heat is over, and the end of the summer holiday in Europe puts considerable pressure on the likelihood of a decline in demand for crude oil,
which is also causing oil prices to decline over the coming week.

Political unrest in Afghanistan is also a negative factor affecting oil prices today,
with many international airlines having to suspend flights across the country’s airspace before finding a suitable new timetable.

International Energy Agency (IEA): Lowers its expectations for global oil demand

According to a monthly report from the International Energy Agency, global oil demand will increase by 5.3 million barrels per day,
to an average of 96.2 million barrels per day in the second half of 2021, down 500 thousand barrels per day from previous forecasts.

The IEA report said world oil demand “suddenly reversed” last month and fell slightly after increasing by 3.8 million barrels per day in July,
due to the Covid-19 pandemic, where strong developments have hampered the activities of many Asian countries.

The Chinese National Bureau of Statistics has just released data that in July 2021,
the country’s refining capacity was only 13.96 million barrels per day,
down 6% from the record 14.86 million barrels per day recorded in June 2021,
and down 9% from the same period in 2020.

Many major banks also provided less positive expectations on oil demand.

Goldman Sachs predicts that the oil supply deficit will shrink from 2.3 million barrels per day to 1 million barrels per day in the short term,
pointing to declining demand in August and September. 

The Center for Commodity Research (PM Commodities Research) considers that “the momentum of recovery has slowed the recovery of world demand in August,” only about 98 million barrels per day as in July.

Demand decline.. and increased production

While demand for crude oil tends to weaken, in the opposite direction,
the International Energy Agency has said that world oil production is on an upward trend after
OPEC + production has increased.

Data from Baker Hughes services showed that US crude oil production rose to 11.4 million barrels per day in the last week,
and the number of rigs continued to record the third consecutive week of increase.

China also reportedly withdrew some crude from its strategic reserves in July,
despite the country’s refining capacity falling to its lowest level in more than a year.

This means that the supply of oil on the crude oil market is increasing in abundance and there is a risk of surplus.

The above factors occur under the implementation of the OPEC + road map to increase production by 400 thousand barrels per day from August 2021 to the end of 2021.

Positive signs

However, oil prices have shown many positive signs in the crude oil market.

That is, European countries continue to ease and reopen many economic and social activities.

Global economic growth showed signs of slowing, but it has been in place and did not fall into recession.

Retail sales in the Chinese economy grew 8.5 percent on an annual basis in July,
below expectations of 11.5 percent provided by Reuters after an earlier poll.

Chinese industrial production also rose in July, 7.8% lower than expected, up only 6.4%.

In the United States, Michigan consumer expectations and consumer confidence data just released in August were also lower than those previously released,
with Michigan consumer expectations reaching only 65.2 points, well below Investing expectations of 85.0 and 79.0 for July. 

Consumer confidence in Michigan in August was preliminary at 70.2, lower than Michigan forecast and July’s reading of 81.2.

What will happen next week? 

Tomorrow we will enter a new trading week, with almost the same expectations, especially with the increased prevalence of the Covid-19 Delta variant,
but at the same time, investors are trying to cling to any positive news that might support prices. 

An important report that investors will follow this week, and that will affect prices, is the US Crude Inventory Report,
published by the American Petroleum Institute on Tuesday, and the US Energy Information Administration on Wednesday.

Oil is declining by more than 8% during the week and pessimism prevails in the market