Crude oil is declining due to demand fears

US oil prices dropped 9% on Tuesday, their worst day since mid-May. Oil fell to a low of $ 36.13 per barrel, its weakest level in nearly three months. Brent crude, the world benchmark, fell below $ 40 a barrel for the first time since the end of June.

“Demand is down. Supply is up,” said Robert Yavar, director of energy futures at Mizuho Securities. “Economic rules for survival on both ends of the spectrum are being violated.”

After the soldier arrives, OPEC’s de facto leader has dropped its official selling price for Saudi Arabia, Asia and the United States, Bloomberg News reported. It is never a good sign when the world’s major oil exporters feel compelled to cut prices to attract buyers.

“It’s a double-blinking warning sign,” Yauger said. “OPEC is nervous today, giving a bad signal to the energy community.”

‘Avalanche of sell orders’

The latest turmoil in the oil market comes during a major unrest in the stock market.

The Nasdaq fell for a third consecutive day on Tuesday and is teasing a 10% improvement from record highs. Major epidemic winners prefer Tesla (TSLA), Apple (AAPL) And Zoom (ZM) Are very low.

“Oil analyst is stuck in a risk-free business,” said Jeff Vyall, an energy analyst at Newberger Burman. He said that “nothing has changed” in the fundamental supply / demand picture for oil “warrants such a decline.”

The way investors are taking exit on tech stocks, they are betting on crude oil.

“Everyone’s trying to get out at once. There’s an avalanche of orders to sell,” Mizuho’s Yeager said.

Investors are also exiting the stock.

A native tribe of america (APA), Occasional petroleum (OXY) And Diamondback energy (Fang) All declined by more than 6% on Tuesday. Exxonmobil (XOM), Which was knocked out of the Dow last month, retreated another 3%.

Weak air travel is a disappointing demand

The epidemic, along with the Great War between Russia and Saudi Arabia, affected oil prices this spring. US oil prices also changed negatively for the first time, down $ 40 – a barrel.

But unprecedented production cuts from OPEC and Russia helped trigger a V-shaped recovery in the energy market. Seven weeks after bottoming out, US crude returned to $ 40 per barrel. OPEC and Russia agreed to gradually increase production to very low levels.

The good news for the oil bull is that the demand for gasoline has increased rapidly.

Road traffic has almost recovered and Bank of America expects global oil demand from road use to remain positive year-over-year over the next few months. This has helped raise national average gasoline prices to $ 2.22 per gallon from a low of $ 1.77 at the end of April.

Another ugly day for stocks as Nasdaq Tumbles
The bad news is that air travel is nowhere near pre-COVID levels – and it keeps jet fuel demand very depressed. As CNN Business Recovery Tracker shows, just 940,000 people were processed through TSA security lines on Monday, down 59% from a year earlier.
Business travel is unlikely to occur unless there is widespread access to the coronovirus vaccine, United Airlines (UAL) Chairman Oscar Munoz recently told CNN Business.

That’s why Bank of America warned in a report late last week that it would take three years to “normalize” global oil demand.

Michael Tran, managing director of global energy strategy at RBC Capital Markets, said, “Demand for oil globally is really sluggish. All the low-hanging fruits of global oil recovery have already taken place.”

When will the crude be down?

Tran warned that the fundamentals in the oil market would likely “remain weak through a decline.”

So how much less can crude go?

Even in Tuesday’s lows, US oil prices are trading around $ 75 above the negative prices on April 20. But energy analysts do not expect a trip below zero to recur, perhaps ever again.

Yawger estimates that crude will not be much less than $ 30 per barrel because that time OPEC will be forced to come to the rescue again.

“I don’t think we’re going to spring into the abyss again,” he said.


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