Crude oil price fails to clear $42 after IEA and OPEC slashes demand outlook

The International Energy Agency (IEA) and OPEC both cut the global demand for oil products amid the surging number of new COVID-19 infections. 

Fundamental analysis: The rebound fading 

The IEA cut its global oil demand outlook for this year as it is highly unlikely that COVID-19 will have a meaningful impact this year, as well as beginning of the next year. The Agency now projects global oil demand to fall by 8.8 million barrels per day (bpd), which is lower than 9.2 bpd projected last month. 

In 2021, the IEA predicts the demand for oil to increase given the depressed outlook for this year.  

“It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021,” the IEA said in their monthly report.

In a similar fashion, the Organization of the Petroleum Exporting Countries (OPEC) also cut its estimates for global oil demand for both 2020 and 2021, citing both COVID-19 infections and weak economic prospects. 

OPEC now expects a decline by about 9.8 million bpd compared to a year-ago period, which is again lower by 0.3 million bpd. The outlook for 2021 should improve but OPEC is now projecting a downward correction of 0.3 million barrels from the outlook issued last month. 

“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021,” OPEC said in a statement.

Technical analysis: Bulls fail to hold onto gains

Crude oil prices are trading about 1.4% higher today, at $42.00 as buyers force a return to the “crime scene,” given that the WTI price failed to close above $42 yesterday despite a trip north of $43 at one point. 

Two modified 2020 and 2021 outlooks by IEA and OPEC have hurt crude oil price prospects in the near-term, inviting more selling pressure for oil traders. Although yesterday’s top represents a 2-month high for crude oil price, the risk is still tilted to the downside as sellers eye a move to $40.40.

Summary

Both the IEA and OPEC have cut their global oil demand prospects for 2020 on the back of the surge in coronavirus cases across Europe and the United States. Crude oil prices are trading below $42 for the moment as the bulls struggle to close above this pivot point.