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Oil market: the unbalanced demand and supply

21 September 2021

Oil prices climbed to higher grounds in the most recent daily sessions adding further to its upward momentum formed so far in September. The Oil market is running through a rather interesting period at the moment with lots of fundamentals driving trader decisions and the price action providing various setup opportunities. This report will overview the latest developments within the Oil market and our personal views in parallel. We will be closing with WTI’s technical analysis with important trends and levels identified.

Making a start with the weekly Oil market readings and the possible assumptions we can get by analyzing their price reaction. The most recent Baker Hughes Oil rig count figure rose from previous 394 to 401, yet remains far from the August high of 410. Active Oil rigs remain lower thus demand in the US may have also been lower in the most recent weeks. On Tuesday the API weekly crude Oil stockpiles indicated a large drawdown of -5.44M barrels which was much bigger than both expected and the previous figure.

On Wednesday the EIA Crude Oil inventories also displayed a large drawdown of -6.42M barrels intensifying further the upward momentum Oil prices were in, since the start of the current week. Large drawdowns tend to support Oil prices and this was displayed in the past days as WTI broke to a new monthly high price.

During the start of the current week, the OPEC monthly report for September was released providing valuable insights on the strings pulling the Oil market at the moment. According to the official report, Oil demand in the (3Q) of 2021 remains uplifted, reinforced by rising mobility and travelling activities. Simultaneously, fears over the potential impact of the Delta variant seem to be interfering with oil demand forecasts, as we move into the ending season of the year. The uncertainty derived from this subject has led to downward adjustments to the (4Q) estimates. Yet the group seems to support the notion for higher Oil demand recovery in the 1H22. According to the report, non-OPEC supply was revised downwards as supply was impacted mostly by outages in North America with production disturbances at some platforms in the Gulf of Mexico and the Hurricane Ida disruption.

However, with demand being on the rise in Q3 and considerable drawdowns displayed on a weekly basis along with Hurricanes Ida and Nicholas disrupting production, these may have been the best circumstances for traders, in a long time. In addition, Reuters in the past days stated energy companies operating in the Gulf of Mexico are still keeping 30% of crude oil production shut. That accounts approximately for 0.5M barrels, according to regulator Bureau of Safety and Environmental Enforcement (BSEE).

Finally, the high Oil prices are having a negative impact on various countries as energy costs are pushing inflation higher. China, the biggest Oil importer globally has taken the initiative to use its strategic petroleum reserves as an attempt to better control commodity prices. This is a strategic action taken by the Chinese government that could be willing to make better use of domestic oil markets, in case Oil prices remain at higher levels and could potentially impact the economy even more.



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