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Oil to suffer long term


1 June 2020

The oil price is down more than 1 percent in today’s trading session as the market digested the news on bigger than expected oil inventories in the US which raised concerns that demand was starting to slide.

The U.S. Energy Information Administration (EIA) released figures showing that crude oil inventories rose 7.9 million barrels over the last week, well above analyst’s expectations which was attributed to a big increase in imports. Some say the extra inventories are justified because gasoline demand is picking up as the US population begins driving again and lockdown measures regarding the coronavirus are eased. 

“Even though we got the big increase in crude supplies, there’s optimism in the numbers because of the uptick in refinery runs and because of the uptick in gasoline demand,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.

The coronavirus epidemic has caused long lasting misery and financial pain to all sectors of the economy and one of the worst casualties was the oil price which just over a month ago fell into negative territory before staging a sizeable comeback and is currently trading at over $30 per barrel.

However, the long-term damage may already be done as the world’s population rearrange their daily working lives which is going to have a huge impact on the oil price going forward.

One of the biggest threats to oil demand is the current trend of working remotely which was forced on most of the world’s population due to the coronavirus. This may become the new norm for many as businesses seek to cut costs by saving on rent for office space which means less travelling by car or by plane which will have a huge impact on oil.

“Pretty much every company out there with a sizable commercial real estate footprint is thinking about this now,” said Dan Klein, head of scenario planning at S&P Global Platts. “While it’s probably too early to tell how prevalent this structural shift in working from home will become after the restrictions are lifted, it’s clear that a certain percentage of workers will never go back to commuting, at least every day,” he added.

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