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08.07.202014:11 Forex Analysis & Reviews: Oil market remains under pressure, prices are slowly sliding down

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Exchange Rates 08.07.2020 analysis

Yesterday's negative dynamics on the price of oil continued this morning. A rebound takes place ahead of the publication of a new batch of statistics on the level of hydrocarbon reserves in the United States of America. The country's Department of Energy should submit its next report, which will indicate all the changes that have occurred over the past week.

This morning, the price of futures contracts for Brent crude oil for delivery in September at a trading floor in London fell to another 0.23% or $0.1. Of course, the decline is not too serious, but even at such a pace, raw materials can lose all the advantage that has been growing in recent weeks. So far, the price has stopped at around $42.98 per barrel. Recall that yesterday's trading closed with a slight drop of 0.05% or $0.02.

The price of futures contracts for WTI light crude oil for delivery in August on an electronic trading platform in New York also shows a negative trend today. In the morning, it fell 0.32% or $0.13, which sent it to the mark of $40.49 per barrel. Oil still continues to hold above the strategically important value of $ 40 per barrel, indicating investor restraint. Yesterday's trading session closed with a decrease of 0.02%, which is also not a very serious pullback.

While there are no official statistics on oil reserves in the US, we can refer to preliminary forecasts of analysts, who, by the way, are not very positive. According to the American Petroleum Institute, last week there was an increase in black gold reserves by about 2 million barrels. At the same time, gasoline inventories decreased by 1.8 million barrels, and the level of distillates fell by 847,000 barrels. In the strategically important storage in Cushing, stocks also grew by 2.2 million barrels.

Other experts argue that there should be a drop in stocks of raw materials by about 3.7 million barrels: gasoline will decrease by 1.2 million barrels, and distillates will decrease by 500,000 barrels.

We'll find out which among them is closest to the truth today, as official data from the United States' Department of Energy will be released tonight. However, it was announced yesterday that the reduction in world reserves of black gold, which is proceeding at an average rate of 1.8 million barrels per day, should continue until the end of next year. Such rates will help get rid of the surplus that began to form from the beginning of this year.

As reported by the US Department of Energy, the total amount of unsold commercial stocks of crude oil on the market since the beginning of this year was 1.3 billion barrels. As expected, hydrocarbon consumption in the last quarter of this year should be about 101.1 million barrels per day. This figure is higher than what was recorded in the second quarter of 2020, with 16.7 million barrels per day. At the same time, the market supply should also grow, despite all the efforts of OPEC. Of course, the voluntary production restriction prescribed in the contract will be able to restrain this process for some time to a value of 1.8 million barrels per day. This will slightly reduce the resulting surplus.

According to the agency, non-OPEC countries reduced their production in the second quarter of this year by about 5.4 million barrels per day compared to the previous period. Almost completely, by 85%, this reduction was due to the efforts of three states: the United States of America, Russia, and Canada. In the USA, the number of actively operating drilling rigs continues to decrease, which leads to a decrease in production volumes. Russia reduced production in order to comply with the terms of the agreement with OPEC. And Canada has ceased to actively extract raw materials due to its too low cost.

According to preliminary data, non-OPEC countries in 2020 should reduce hydrocarbon production by 2.2 million barrels per day compared to last year. And in countries that are members of the organization, production will decrease by about 7.9 million barrels per day and will reach the level of 22.5 million barrels per day. However, as early as next month, restrictions on production will not be as severe as it was before, so there will be another factor that puts pressure on the cost of raw materials on the market.

In addition, preliminary forecasts reflected an increase in the value of WTI crude oil products per year by approximately 6.9%. It was previously announced that the price will not rise above $ 37.55 per barrel, but now it is confidently holding above $ 40 per barrel.

The forecast also expected that the average cost of Brent crude oil for the current year will be at least $ 40.5 per barrel, which in turn is 6.5% higher than the data presented previously.

In general, the cost of Brent crude oil may reach $ 49.7 per barrel by the end of the year, while light WTI crude oil may well rise to $ 45.7 per barrel.

Maria Shablon
Analytical expert of InstaForex
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