Crude oil prices waiver amid concerns on increasing supply

Crude oil prices waiver amid concerns on increasing supply
Written by:
Faith Maina
December 2, 2020
  • Brent and WTI prices have been wavering below last week's highs.
  • API's data indicates that the U.S. oil inventories are higher than expected.
  • OPEC+ is yet to reach a decision on the extension of oil output cuts.
  • Optimism in the market has capped the downward momentum.

Crude oil prices are wavering as the market reacts to U.S. inventories. API’s figures are higher than expected. Investors’ focus is now on the EIA data scheduled for later today. Besides, differences within the OPEC+ cartel has heightened concerns about a possible increase in supply. WTI is trading at ~$44.34, which is lower than last week’s high of $46.27. Similarly, Brent is trading at $47.36. In the previous week, it had reached a high of $49.

crude oil prices

U.S. records higher-than-expected crude oil inventories

The crude oil market is also reacting to the unexpected rise in the amount of crude oil held by U.S. companies. Yesterday, the American Petroleum Institute (API) reported an increase in U.S. crude oil inventories. Last week’s inventories rose by 4.146 million barrels.

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In the preceding week, the amount of product in storage was higher by 3.8 million barrels. Experts have forecasted that last week’s inventories will lessen by 2.272 million barrels. The higher-than-expected figure indicates reduced demand; which is a concern for investors looking to trade oil.  

Later today, the Energy Information Administration will release data on the U.S. crude oil inventories. Analysts predict that the inventories will reduce by 2.358 million barrels. The forecasted change is greater than the previous -0.754 million barrels. Investors will also be keen on the amount of crude oil in storage at Cushing; which is WTI’s delivery point.

Hitches in OPEC+ meeting heighten concerns over increased crude oil supply

Investors had been eyeing the OPEC+ meeting scheduled for two days from 30th December. In fact, the sentiment supported the bullish breakout of Brent and WTI prices past $45 and $43 respectively. As such, the current disagreements among the oil-producing countries have led to the wavering of crude oil prices.

On the one hand, Russia and Saudi Arabia support the extension of production cuts. However, the UAE and other members of the cartel are of a different opinion. Investors’ concern is that OPEC+’s failure to extend the oil output cuts will result in more crude oil supply than demand.   

Hopes of high crude oil demand limit drop in prices

Investors’ hopes in COVID-19 vaccination have helped cap the losses in crude oil prices. Even though the U.S. FDA is yet to approve Pfizer’s application, the company’s distribution plan is underway. On 27th November, the United Airlines Holdings Inc (NASDAQ: UAL) started operating its charter flights from Brussels to Chicago for the transportation of Pfizer’s vaccine.

Pfizer has been laying the groundwork to ensure quick distribution of the doses as soon as the regulator approves the emergency use of the vaccine. Investors are optimistic that the vaccination will commence on 11th December. Subsequently, the pre-pandemic norm is likely to return and heighten the demand for crude oil. This optimism has limited the downward momentum of crude oil prices. 

Furthermore, analysts are of the opinion that the fracas within OPEC+ members is short-lived. Michael Lynch, the leader at Strategic Energy & Economic Research said, “People figure this is the same old story. They’ll argue but they’ll finally come to an agreement, because no one wants the price to collapse.”