Oil: Rising European COVID-19 cases to weigh on demand

WTI gains 3.5%, ending at $38.05 on Wednesday while Brent crude jumps 3%, finishing at $40.99. A rise in European COVID-19 cases suggests demand will remain weak, Joseph Trevisani, an analyst at FXStreet, reports.

Key quotes

“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-19 counts, the Saudi cut seemed to confirm that demand will remain too weak to boost crude prices.”

“Crude prices have been pressured by poor fundamentals: a weak global recovery threatened by the potential for returning COVID-19 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 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.”