The oil price went down last week, partly due to the
unprecedented coronavirus outbreak in the White House.
In fact, President Trump’s infection overshadowed a
more crucial fact that normally determines the price of commodity; it’s the
tendency of the market being flooded by excess oil, as desperate producers are
impatient to keep selling oil in order to balance their books.
The other crucial factor, however, remains in a
position that always favours keeping up the price at the current level, despite
understandable fluctuations.
The crude oil inventories in the US continue to
decline in the past few weeks, which clearly indicate a steady demand in oil.
It’s still, according to the EIA - the US Energy Information Administration - 20%
below 5-year-average, though.
At present, oil producers, including some members of
the OPEC, are like livestock in a corral – waiting to come out of the
artificial barrier of production cuts imposed on them to shore up the price.
Markets are fully aware of the development and the
investors do exercise caution when it comes to buying oil.
Although we are in the second wave of the pandemic,
the probability of a full lockdown is still low; the death rate is fairly low
compared with the same during the first lockdown.
The West can learn a few lessons from those who
manage the threat comprehensively and when that happens markets will react in
proportion to what they sense outside stock makets.
Oil charts that matter are here:
