Crude oil climbs at 4-month highs on lower US inventories

Commodity Update, Thursday, 16th of July, 2020

The energy market has been dominated this week with headlines over the OPEC decision for the output cuts, the oil demand outlook, the fear for the second wave of infections, and hopes rising for a coronavirus vaccine.

WTI and Brent crude oil prices climbed near 4-month highs of $41 and $44 per barrel respectively on Wednesday, recovering by more than 300% from their historic lows of around $10 per barrel in April due to the global lockdowns to contain further spread of the pandemic.

Both oil prices hit intraday highs yesterday after the American Energy Information Administration showed a larger-than-expected drawdown in crude oil, gasoline, and distillate inventories for last week, signaling an improvement in US fuel demand, coupled with lower imports of crude from Saudi Arabia.

Furthermore, oil prices were boosted after the OPEC group improved its oil demand outlook for 2021 in response to global economic recovery and the positive news over a potential coronavirus vaccine.

However, the price rally was capped after the OPEC group and its allies led by Russia decided on Wednesday to roll back the record output cut of 9.7 million barrels per day to 7.7 million, starting from August, as the global economy slowly recovers from the pandemic.

Finally, the resurgence of coronavirus infections in the US and other countries and the re-imposition of lockdowns in some places around the world could limit the global oil demand recovery.