Oil prices muted as demand remains under pressure and world awaits staggered

The oil market is waiting for solid signals about the state of the global economy and this week, the International Monetary Fund issued a cautiously optimistic outlook but inventories remain high and demand growth is still slow.

In Friday trading, Brent crude was priced above US$62 with WTI falling below US$60 a barrel.

Projections clouded

The situation with the global pandemic continues to cloud all projections as numbers of infections and deaths vary on a daily basis.

The numbers in the US remain high with more than 31 million cases and their northern neighbour Canada is experiencing a third wave of the virus.

Brazil and India are also topping the list with restrictions on movement of people in many cities. Lockdown continues in so many countries with little appetite and limited availability of travel. No travel means less demand for fuel and this will have a knock-on effect on crude oil demand.

Gasoline inventories in the US were up by 4 million barrels a day in response to weak demand.

Gasoline production is holding steady at more than 9 million barrels a day. Crude inventories managed to decline by 3.5 million barrels, according to the Energy Information Administration.

Analysts had expected a drop in US crude stocks, but as always, this is a difficult market to predict.

The US rig count has been edging up in recent weeks and its now at 405, according to S&P Global Platts. The report said that this was “the first time the oil rig count cracked the 400-mark since mid-April 2020”.

Back then, the steep fall in the oil price sent operators running from the market. American crude oil production is now close to 11 million barrels a day on latest figures from EIA.

The report cites expecting further increase in rig-count this year.

Iranian government officials continue to engage with negotiators in Vienna but insist they are closer to the lifting of sanctions scenario in return for the country biding by the Nuclear 2015 agreement.

Whatever the outcome, the sentiment is more favourable than in recent years and this concerns many oil analysts.

Economic progress

While people will welcome the country being able to resume a sense of economic progress after years of sanctions, there’s still concern about what this will mean for oil supply.

Iran continues to supply China and limited countries but adding more oil to the market in the coming months might not be welcomed in terms of OPEC+ strategy.

As founding members of OPEC, the organisation will have to find a way to support and accommodate Iran and manage any additional supply that might eventually return to the market.

The US Federal Reserve says will leave interest rates as is, saying the world was still quite a way off a time when “maximum employment and price stability goals would be realised”.

The IMF welcomed the pace of public spending to help stem the spread of COVID-19 and said it expected this action to help the economy and push global growth to 6% this year. This was taken as a positive indicator by the market as such growth rates have not been witnessed in decades.

Volatility in the market is likely to continue all year, but looking ahead, the fundamentals appear solid as reflected in a stronger oil futures curve.

The pace of the staggered economic recovery will be watched carefully as everyone looks to an undetermined time when COVID-19 is being managed and demand and growth will return to the world.