Daily Market Briefing
This week we will have an OPEC+ meeting in the Joint Monitoring Committee where the agenda will most likely be to assess the oil producers’ compliance to production cuts as demand still halters due to the Coronavirus.
WTI oil prices have fallen below $40/bbl. after staging a comeback after the historic fall in April. However, as the virus has continued to affect major economies worldwide, a sustained recovery will be uncertain in the short run, however focus is still on a vaccine to the virus.
Compliance with the recent output cuts will most likely be a major talking point this week at the OPEC+ meeting as new signs of exporters disregarding the oil output target deals have emerged. Recent data indicate that the Gulf states are producing above their quotas and are generating oversupply in the market and thereby contributing to a drop in crude prices. This concern of over supply is also indicated by the widening contango in Brent crude.
In the recent output cuts there were some major assumptions built in and some of those assumptions have just not happened. Some of the poorer OPEC+ nations need crude prices higher than their current levels in order to cover government spending. The recent downturn in demand comes as the peak of the U.S. driving season has passed and rush hour traffic is still sparse though increasing, crude inventories remain high. Indian transport fuel sales still remain 20% below their levels from a year ago.
In other news some oil traders are getting giant tankers for floating storage. This could be a worrying sign for oil producers as it indicates a potential surplus in production. Also, the Gulf Coast is preparing to meet Sally, a hurricane which is expected to reach shore early Tuesday.
Last close of WTI for October was $37.33/bbl. and Brent for November was $39.83/bbl.