Every month OPEC (Organization for the Petroleum Exporting Countries) releases a report on the oil industry and the overall OPEC oil price and trend evolution. The report is particularly important this October because the price of oil remained glued to the $40 level for several months now.
Heading into the end of the trading year, the report shows that demand for oil is likely to decline in the two-and-a-half months left, putting pressure on the price of oil on any attempt to break higher. Speaking of the price of oil, the recovery from negative $40 to positive $40 and the subsequent consolidation that follows looks like a technical continuation pattern – a pennant – that points to higher levels once the price clears resistance.
Demand for OPEC Crude Revised Down
Demand for the OPEC crude oil was revised down for the rest of the year by 0.3 mb/d. On top of that, the OPEC revised downward the global economic forecast for the year ahead. It now sees an economic expansion of 4.6% when compared to 4.7% previously, and the chances are that the projection is rather conservative.
Similar news came from the IEA (International Energy Agency) that just released its annual energy report. While Chinese consumption is the bright spot in the period ahead, the IEA warns OPEC that there is little room for extra oil in the market.
The shale oil industry remains affected after it suffered an unprecedented downturn. However, rumors on the market are that ConocoPhillips is in talks to acquire an archrival, in a bet that the industry downturn is only temporary.
Indeed, the recovery after the March-April plunge in prices is impressive. However, it took a concentrated effort from OPEC and “friends” (i.e., Russia) to bring back the price of oil to a sustainable level.
Moving forward, it all depends on the shape of the economic recovery and how bumpy the road ahead will be. With the virus spreading in Western Europe and the United States at a faster pace when compared with the first wave, traders should not be surprised to see further lockdowns, albeit only local ones. The Netherlands, for instance, just announced tougher measures (restrictions) after the number of infections grew and Madrid is in a two week’s lockdown.
Restrictions will affect economic performance, and this, in turn, oil demand. However, the oil market is dominated by interventions and production control. Hence, the better the OPEC estimates the trends ahead, the more stable the price of oil becomes.