Rystad Energy’s daily market comment from our Senior Oil Markets Analyst Paola Rodriguez-Masiu

ou have to look at the trend. Oil prices are keeping their low levels, heading for a second consecutive week of losses for the first time since April, the height of Covid-19’s first wave.

The weekly back to back losses can influence the market and traders start realizing that now prices start feeling a ‘second wave’ of their own, which even came a bit delayed. 

The low price levels of this morning, little changed from the previous trading day, are mostly formed and maintained by news that US commercial stockpiles registered a build of 2.0 million barrels, after six straight weeks of hefty draws.

Such inventory news could not come at a worse moment for the market, which was already seeing Middle Eastern selling prices declining, a sign that producers now start recognizing that demand is falling short of their expectations.

What really ringed the alarms is that refinery activity fell-more-than-expected. The 1.1 million bpd decline reported in crude runs suggests that activity was not only down due to Laura’s hit but also on refiners taking down units for maintenance quicker-than-anticipated.

The market is now concerned that there might be need to store again more crude and this worry is evident in a scramble to book floating storage again for the future, now that prices are still at non-emergency levels.

Floating storage helped save the market from collapsing during the first wave and although the current situation is not as bad, it looks like it will provide some relief again.

Nevertheless, this move hints that the market may be expecting stocks to increase in coming weeks and it is trying to safeguard itself.

Overall, looking at the price level itself, prices have been stubbornly locked in the low $40s per barrel range since June, but really started this month on the wrong foot.

Summing it up, the decline is triggered by a series of unfortunate events: a surge in Covid-19 cases worldwide, the end of the peak summer driving season, the slowdown of the Chinese crude importing machine, and major producers trimming the OSPs to Asia as refinery margins worsen. 

We find that this price drop is a bearish correction that has been on the making for a while and that the market had been too optimistic on draws and demand recovery expectations.