Oil Futures Advance Despite Fears for Market Imbalance

Ibeth Rivero

"Another round of lockdowns across the global economy could send oil prices spiraling once more,"

So far this week oil futures have advanced, despite that fears for oversupply and for a second coronavirus wave in the developed countries are slowly taking over the market sentiment. Brent oil futures have gained 4.52 percent while West Texas Intermediate Oil futures advanced 3.97 percent.

Oil futures have been suffering significant losses due to the fears for a second wave of the coronavirus outbreak, which at the moment has infected about 8,346,883 individuals worldwide, and has killed 448,770. Recent reports about coronavirus infections peaking in China and some places in the United States are beginning to weigh in on the market sentiment.

"Another round of lockdowns across the global economy could send oil prices spiraling once more," explained Han Tan, an analyst at Forextime.

There are also fears concerning a possible oversupply in the markets, as the OPEC+ has been struggling to keep afloat as a coalition given the negative of some of its members to comply with the required supply cuts. As of recently, the coalition agreed on continuing with the deal, which has been crucial in terms of keeping the oil prices under control until the end of July.

Crude OilIn any case, despite the fact that there have been conflicts between the OPEC+ coalition members regarding the non-compliance of some of them, this week the markets have learned that the compliance is at 89 percent. This advance, besides setting an optimistic tone in the markets, is remarkable especially given the fact that the deal was about to collapse last month due to this factor.

An example of this is Iraq, which has been accused of not complying with the mandatory supply cuts in the past, being (according to some) one of the main transgressors of the deal. Despite this, the markets recently learned that Iraq's crude exports fell down 8 percent in June, a figure that according to some analysts is important but is still far from full compliance. The Iraqi government pledged to continue cutting its production and even asked the Kurdistan Region to reduce its oil supply, despite the fact that it is currently economically constrained and that it is heavily dependent on its exports.

Russia has also advanced in terms of its compliance with the deal. According to recent data, Russia lowered down its production from 11 to 8.541 million barrels per day by June 15, being its target at 8.5 million barrels per day. This, according to some analysts, has affected the Russian economy in a significant way, as its probably one of the main causes behind May's drop in industrial output.

Despite the positive news, oil futures ended lower on Wednesday after the markets learned that commercial crude oil inventories in the United States went up. According to data released by the Energy Information Administration, oil inventories increased to 1.2 million barrels in the week of June 12th, going against the analysts' expectations, who foresaw a drop of 0.15 million barrels.

Advertisement
Oil prices are making great trade opportunities

Trade Oil Now!

Traders also learned about a recent report by the OPEC which foresees that global oil demand which will keep declining in the second quarter, though at a slower pace than the first one. Regarding this issue, the International Energy Agency claimed on its most recent report that oil demand will grow by 5.7 million barrels per day this year, adding that demand levels won't come back to pre-pandemic levels until 2022.

It's possible that fears and uncertainty in light of a possible imbalance in the oil markets, whether from the demand side or the supply side, will keep weighing on the oil markets' stability. Another factor that may affect the stability of the oil markets is the actual pace at which the global economy will recover, which as far as we know won't be as quick as expected.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.