Following the price rally seen last week, oil prices have returned to slightly lower levels, below $ 70 (Brent) and $ 64 (WTI).
The key drivers of this correction are the rise in U.S. oil deposits for the second week in a row with 13.8 million barrels w / w, this is due to the continued closure of many refineries on the Gulf coast.
Times continue even this week as refiners on the Gulf coast continue to operate at full capacity. Refineries on the Gulf coast are currently 2.59 million bpd below their processing levels a year ago, the hardest hit by refiners elsewhere in the US. In addition, crude imports to refineries of 3.39 million bpd below its levels a year ago were attributed not only to the COVID-19 epidemic but also to the oil freeze seen there. in Texas last month. For example, we see that gasoline and diesel deposits declined by 11.9 million barrels w / w and 5.5 million barrels w / w, separately. Currently, U.S. commercial oil investments are 46.6 million above their pre-pandemic levels. In addition, U.S. output rose 900,000 bpd w / w to stand at 10.90 million bpd.
Concerns have increased the number of COVID-19 cases in Europe affecting prices where lock-in measures have been extended in key economies such as Germany, Italy, France and the UK. Banning vaccines with the Astra-Zeneca injection in many European countries also raises concerns about the safety and accessibility of COVID-19 vaccines. The World Health Organization has just announced that a third dose of vaccine may have the potential to counteract new variations of the virus.
Related video: Why the oil and gas numbers count
In addition, there has been a recent reversal in the U.S. dollar index that trades above 91 ahead of this week’s Fed meeting which will review the interest rates. Further delays in walking flat rates could spur economic growth in the U.S. that will further support oil prices in 2021.
High prices hurt hurt demand in India
The current rise in oil prices has provoked concerns among Indian brewers, which are considered to be the second largest oil importers in the world just after China. Oil demand is said to have fallen by around 5% in February last year and Indian brewers have been asked to diversify sources of their raw material. India is one country that has been particularly unhappy with OPEC +’s recent decision not to boost production, which has seen crude oil prices rise at a time of economic recovery and demand. relatively low oil. India is expected to post the largest growth in energy demand in the next 20 years with oil demand expected to increase from 4 million bpd to 8.7 million bpd in 2040. India has relied on the Middle East for over 60% of its raw materials. . However, it is currently trying to ban buying, importing raw from the US and Latin America. However, this strategy may be compromised by the shipping speed, ease of production, and raw quality.
A long-term bearish risk for crude is that U.S. shale oil production is expected to return if we continue to see higher crude prices for the longer term. To date, charcoal oil producers have been under control focusing on maintaining a smooth yield while generating a good return for the shareholders while reducing debt levels. This may have been a key consideration for the OPEC + decision taken earlier this month. Related: Are analysts dismissing Chinese oil demand?
OPEC remains cautious about demand
With the bullish price forecast for 2021, OPEC expects non-OPEC supplies to increase by 1 million bpd y / y on average 63.9 million bpd with the largest increase expected to come from Brazil, Norway, Canada, and Russia.
Due to the economic uncertainty regarding new variants of COVID-19, vaccine efficacy, OPEC has revised the demand forecast for H1-2021 to 96.3 million bpd up to 5.9 million bpd y / y. In addition, OECD crude oil stocks are currently at 46.3 million barrels above the most recent five-year average, and 61.3 million barrels above the most recent five-year average prior to the 2015-2019 pandemic. Most of the excess rates are still in U.S. crude oil investments.
Compliance rates with OPEC + yield cuts have also been very bullish for the month of February. According to Platts, compliance stands at 113.54% which is largely due to the voluntary cuts made by Saudi Arabia which has a compliance rate of 152.58%. In addition, Russia achieved a compliance of 100.22% with output standing at 9.18 million bpd. Iraq and Nigeria are still falling behind their compliance targets, exceeding their quota by 40,000 bpd and 30,000 bpd, respectively, in the month of February. Moreover, representation from the OPEC + agreement-free countries, Iran, Libya, and Venezuela remains virtually unchanged at 2.14, 1.13, and 0.55 million bpd, respectively.
By Yousef Alshammari for Oilprice.com
More top readings from Oilprice.com: