WTI crude oil futures rose more than 2 percent on Tuesday to near $68 a barrel, rebounding from a near 3-week low of $65.2 in the previous session.
The rises came just after a preliminary Reuters poll showed expectations of a decline in U.S. crude inventories. It also seems not insignificant that today the U.S. Senate is expected to vote on a $1 trillion infrastructure bill that, if passed, could boost the economy and demand for petroleum products.
Coronavirus continues to scare
Concerns about the growing number of cases of the delta variant of the coronavirus and the restrictions being put in place persist and could impact the oil market and prices. Some cities in China have begun mass testing, while authorities have introduced new restrictions including flight cancellations, travel warnings for 46 cities, and restrictions on public transport and cab services in the 144 most affected areas.
In the US, the number of new cases of the virus rose to its highest level in six months, with more than 100,000 infections reported across the country.
OPEC+ gained what it wanted?
Thus, there are growing concerns about a decline in oil demand at a time when OPEC+ has decided to increase crude supply. Hence, it appears that based on the EIA's projections, the oil market may reach equilibrium in the third quarter of 2021, and then it is supply that may begin to outstrip demand. In the third quarter, oversupply is expected to start at 210,000 barrels per day, down from about 1.7 million. By contrast, an oversupply of nearly 200,000 barrels could emerge starting in the new year, and then could increase to half a million barrels a day, according to EIA data.
This could mean that around $70-80 per barrel of WTI oil is the upper barrier and could be the end of the uptrend since the memorable moment when we saw negative oil prices. So it seems that the OPEC+ countries have gotten what they wanted to get. Relatively high oil prices allow them to make up for their losses and balance their budgets to stabilize the market at these levels. Hence, it appears that the rally in the oil market may have ended and prices may come to consolidate below $75 per barrel with the risk of deepening declines as more restrictions are imposed and oil demand begins to decline.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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