Page 7 - FSUOGM Week 36

FSUOGM COMMENTARY FSUOGM

The US summer driving
season is now over.

levels seen before the coronavirus (COVID-19) "The cocktail of more COVID-19 infections
pandemic struck, Russian Energy Minister Alex- and an expected decline in road fuel demand in
ander Novatek said on September 2. However, the US is strong enough to put healthier WTI
reaching the full pre-pandemic level will take prices to sleep for a while until the hangover is
until sometime in 2021, he said. over," Olso-based Rystad Energy's Paola Rodri-
Cuts by OPEC+ and other producers guez-Masiu said.
earlier this year were able to stem the rapid Prices were also dragged down by reports of
increase in global storage of oil and refined crisis-stricken Iraq seeking an exemption for
products, but stock levels remain high. As the cuts it has been asked to implement to make up
summer driving season ends, the rebound in for exceeding its OPEC+ quotas earlier.
demand has slowed significantly. And con- Analysts at Dutch bank ING also drew atten-
sumption levels continue to be weighed down tion to Saudi Aramco's decision to cut its official
by the economic fallout from the pandemic, selling price (OSP) for more crude grades for
and the renewal of lockdown measures in cer- October.
tain countries. "This is the first time since June that the Sau-
The oil market has seen five months of solid dis have set this OSP at a discount to the Oman/
gains, but prices began in September on a weak Dubai benchmark," ING commented. "Clearly
note. Brent suffered its biggest weekly decline this suggests that the market is not tightening
in the first week of the month since early June, as quickly as many had anticipated, with sup-
amid concerns about stalling demand and ply edging higher, and with demand clearly
oversupply fears. It closed on September 4 at faltering."
$42.66, its lowest level since the start of July. Moving forward, some like Goldman Sachs
Brent continued its decline this week, dipping are bullish on oil prices, predicting a rebound to
under $40 on September 8 for the first time $65 per barrel by the third quarter of 2021, before
since June. settling at $58 by the end of the year. There is
"Rising Covid-19 cases around the world “additional upside through 2021 as inventories
continue to raise concerns about the short-term start to normalise and the oil market ends up in
demand outlook," John Hardy, head of FX Strat- backwardation by next year,” it said in a report
egy at Denmark's Saxo Bank, commented. "To last week.
the list we can add the end of the US summer The International Energy Agency (IEA), the
driving season, lower Chinese imports and a US Energy Information Administration (EIA)
stronger dollar." and others do not share this level of optimism,
Ever tenser relations between Beijing and however. The EIA, for instance, sees Brent aver-
Washington have not helped matters. US Pres- aging only $49.5 per barrel in 2021, according to
ident Donald Trump said on September 7 he its latest forecast. For his part, Russia’s Novak has
wanted to "decouple" the US economy from said he expects Brent to range between $50-55
China, suggesting a potential escalation in the per barrel next year.
US-China trade war. “The future recovery is going to be much
West Texas Intermediate (WTI) has per- slower,” he argued, “not the fast trend we have
formed particularly poorly, not only because of observed in the first few months. Mostly due to
weaker-than-hoped for gasoline demand but the overall transformation and the changes in the
also a spike in COVID-19 cases after the Labour energy balance and in the behaviour pattern of
Day weekend. consumers, first and foremost.” ™

Week 36 09•September•2020 www. NEWSBASE .com P7