21.10.202012:03 Forex Analysis & Reviews: Oil market may take time to cope as prices continue to decline

Crude oil prices traded in a negative zone Wednesday morning after the publication of preliminary data on the level of raw material reserves in the U.S. According to the American Petroleum Institute (API), there was an increase in black gold reserves last week.

The price of futures contracts for Brent crude oil for delivery in December on the trading floor in London sank 0.76% or $0.33, which sent it to $42.83 per barrel. Tuesday's trading session was more successful with an increase of 1.3% or $0.54, which sent its final cost at $43.16 per barrel.

The price of futures contracts for WTI crude oil for delivery in December on the electronic trading platform in New York also fell 0.67% or $0.28. Its current level has already dropped to $41.42 per barrel. Tuesday's trading session ended in the green zone with a growth of 1.6% or $0.64, which sent the price at around $41.7 per barrel. The price of WTI futures for November delivery, which expired yesterday, also went up by 1.5% or $0.63.

According to API's preliminary forecasts, crude oil reserves in the U.S. increased by about 584,000 barrels last week, which ended October 16. Gasoline reserves, on the contrary, decreased by 1.6 million barrels, and distillates went down by 6 million barrels. The level of crude oil reserves at the strategically important storage facility in Cushing also increased by 1.2 million barrels.

However, experts are in no hurry to rely on the data provided since the forecast of analysts surveyed by S&P Global Platts reflects a slightly different picture. According to its data, a reduction in the reserves of black gold in the U.S. is expected by about 1.9 million barrels. Gasoline will be reduced by 1.6 million barrels, and distillates will decrease by 3 million barrels.

Note that these are only assumptions, the official data from the U.S. Department of Energy is expected to be released Wednesday evening. Market participants are not in a hurry to make premature conclusions and are not showing much activity ahead of the weekly report.

Among other things, the increase in the production of raw materials in Libya is putting quite serious pressure on oil prices. As it became known, over the past month, production of both raw materials and condensate has jumped more than four times, which forced it to move to a new level of 500,000 barrels per day. According to S&P Global Platts, production started at the Abu Attifel field on the first business day of this week after a long break. According to rough estimates production here can reach about 70,000 barrels per day.

It would seem that this situation should seriously frighten market participants, however, they are hopeful that OPEC will be able to resolve this problem. Most likely, during the next meeting of the organization, the previously adopted agreement on increasing production in the region of 2 million barrels per day will be reviewed.

Still, the likelihood that the increase in production in Libya could exert significant pressure on the cost of crude oil and create additional problems in the market is still very high. The pace of recovery in the global demand for black gold may slow down, which, of course, is a bad sign for investors.