The oil situation is, once again, highly unfavorable. The supply and demand news started to trigger pressure on the quotes once again. Technical variables also make us believe in the bulls’ temporary retreat. The mix of negative factors brings agenda back to the prospect of a brief price dive to $25 per barrel for WTI and up to $30 per barrel for Brent.
Last week’s weekly data showed the highest rise, at 4.3 million barrels, in 14 weeks. A rise in production to 11.1 million barrels per day was recorded in the same report and this also takes us back to the end of July rate. In the Strategic Petroleum Reserve, which takes its level to May values, a tidy decline is also taking place.
Once again, this study has made the threat of oversupply important in the oil sector, as we are seeing a rise in production and reserves, which are already close to record volumes.
In relation to the production and demand estimates, perhaps an even more bearish picture will be observed. A new increase in operational oil drilling to 221 rigs (roughly more than 10 for the week) was announced by Baker Hughes on Friday. Taking into account their total numbers including oil and gas installations the number is already 296. Note this is the highest performance since May this year. In this case, more importantly, the optimistic dynamics that represent the attitude of the Americans to increase production in the next six months are reflected.
On the other hand, OPEC-based Libya has already announced an increase in production of up to 0.8 million barrels a day and has stated a target to return to levels of more than 1 million barrels a day in the coming weeks. Such an increase would cause other OPEC countries, causing Saudi Arabia and Iran to make the largest contribution, to partially cut demand, but OPEC should take a much larger problem into account. Record virus spread in Europe and new lockdowns in the region are endangering not only the initial plan to increase production quotas by the end of the year, but also the prospect of new cuts if the situation continues to worsen.
Last week, the clouds around oil thickened heavily, causing it to pass through a range of substantial technical stages. These variables will now further reinforce revenue. Thus, Brent and WTI dropped below the lows of September and early October, having been at the lowest levels since the end of May. After dropping below the 200-day average, both of the most common exchange-traded oils have come under increased pressure. This is a strong indication that the major players have stepped away from the principle of normalizing the supply and demand balance.
Oil quotes can be sent into the level of past consolidation by a new round of pressure. This amount for WTI is a level similar to $25, where there was a long tug of war between bulls and bears in May. At the time, Brent was at $30, a substantial psychological amount that could become a huge level of support.