Oil Reboots: Demand questions remain

Oil futures rebounded after Tuesday’s near three-month lows precipitated when Aramco, the Saudi Arabia state producer, this week reduced its October selling price for light crude. Combined with the likely impact on European economies of increasing Covid counts, the Saudi cut seemed to confirm that demand will remain too weak to boost crude prices.  

Tuesday’s 7.37% fall in WTI the US standard to $36.84, had capped a 13.8% drop in August. Brent the European benchmark slid 5.31% on Tuesday to $39.87 bringing it 12.8% lower on the month.

Oil’s recovery on Wednesday was encouraged by sharply higher equity averages which had suffered large profit taking losses this month.

Equity rebound

As of Wednesday’s close the S&P 500 was up 2.01% on the day but down 5% from the month’s high.  The Dow was 1.60% higher and off 4% from the September top. The Nasdaq was the big loser in September down 7.6% to Wednesday’s close despite a 2.71% gain on the day.

Crude fundamentals and OPEC

Crude prices have been pressured by poor fundamentals: a weak global recovery threatened by the potential for returning Covid cases to damage economies; large current inventories of oil and petroleum products and plentiful spare capacity in both production and refining.

Supply cuts by the Organization of Petroleum Exporting Countries, Russia and others, known as OPEC + have helped support prices but the brief surge of WTI over $43 for three days in late August, the first time it had been above that level since early March, faltered quickly resulting  in a sharp two-week decline which bottomed on Tuesday.

American crude stockpiles unexpectedly rose in the September 4 week after six straight weeks of declines.  Crude production is forecast by the US government to drop by 870,000 barrels a day to 11.38 million barrels a day this year with more cuts expected in 2021.

US petroleum products inventory