Key Talking Points:
- Oil demand continues to be sluggish as the Covid-19 pandemic refuses to leave
- Unwinding of OPEC+ production cuts and US-Iran nuclear accord are the main supply-side risks
- Check out my Q2 Technical Forecast for oil
Oil prices are coming off slightly again in today’s session after data reported last night in the US saw gasoline inventories rise by greater volumes than commercial crude stocks fell in the week ending April 2 (+4m vs -3.5m).
The fact that gasoline inventories ticked up during a week that usually sees a pick up in demand as people travel for the Easter break is a clear indication that overall demand for crude is still struggling to recover despite economic activity starting to get back to normal. The market was quick to pick up on this sign and US crude oil slipped about $1.70 per barrel (-2.88%) on the release of the data.
Overall, the optimism that fuelled the recovery in oil prices since November 2020 seems to be fading as the continued spread of Covid-19 around the world is having a negative impact. The discovery of various vaccines was the main driver behind the strong bullish trend but it now seems that despite quick adoption of vaccination programs, it will likely take until the end of the year to see a meaningful impact on oil consumption as lockdown restrictions are slowly wound down.
So demand conditions continue to be the main drivers of oil prices but there are also some concerns from the supplier side that could shape the price of crude oil in the coming months. On the one hand, the attempted revival of a nuclear accord between the US and Iran, which would see Iranian oil exports return to the market, could send oil prices lower. There is also the easing in production cuts from OPEC+ beginning in May, which will likely keep a lid on prices until a meaningful breakthrough is given on the demand side.