Oil Demand Continues To Rise

The oil market has seen a further recovery this week amidst a broad pickup in risk sentiment as global stay-at-home measures continue to ease. Parts of America have been re-opening over recent days as well as some European countries, fuelling hopes of a return to normality as more businesses begin to re-open. Risk sentiment was boosted further this week by headlines pertaining to a potential vaccine in development. US biotech firm Moderna reported earlier in the week that one of the drugs it is trialling has shown signs of creating a positive immune response in test-patients and it will now begin broader testing and further development.

Oil prices have recovered to their highest level since early March as market attention begins to shift towards the tentative global recovery underway. Parts of the aviation sector have highlighted plans to begin scaling up services (or in some cases, returning to service) again from next month which should see a pickup in fuel demand, depending on passenger demand.

EIA Reports Further Inventory Draw

The latest update from the Energy Information Administration also helped lift oil prices this week. The EIA reported that US oil inventories fell again last week. The decline of 5 million barrels marks a second consecutive week of inventory draw-downs and further supports the idea of a pickup in demand starting to emerge.

With oil prices having fallen to twenty year lows over the last month, fuel prices have cratered and as lock-down measures begin to ease, consumer demand over the next month or so should help to further drive the recovery in oil prices. Road traffic has already been steadily increasing over the last 10 days in both the US and UK and looks set to continue as measures ease further.

The EIA is now projecting global oil demand to pickup strongly in the second half of the year. In its latest STEO (Short-Term-Energy-Outlook) the EIA noted that it expects demand to increase in line with the easing of lock-down measures which, along with the ongoing OPEC production cuts, should see oil prices recover firmly over the rest of the year.

Technical Views

WTI (Bullish above $29.14)

From a technical viewpoint. Oil has now moved back above the $29.14 resistance, turned support. While this level holds, continued upside is likely. Price will soon retest VWAP, which will be a key determinant of near-term price action.  A break above VWAP will put focus on a test of the $41.35 level next ahead of the monthly R1 at $45.66.

The Crude Chronicles - Episode 39

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