Oil price rises due to lower inventories

Oil prices rose by 2% on Wednesday, supported by a sharp drop in crude inventories in the United States. However, gains were limited, as OPEC and its allies are set to ease supply restrictions from August onward.

Brent crude rose 89 cents, or 2.1%, to $43.79 a barrel. US West Texas Intermediate (WTI) crude rose 91 cents, or 2.3%, to $41.20 a barrel.

Prices were boosted due to data from the Energy Information Administration (EIA). It showed that US crude oil inventories dropped by 7.5 million barrels last week. Analysts expected a 2.1 million barrel drop in a Reuters poll.

Phil Flynn, an analyst at Price Futures Group, stated that more withdrawals are likely to happen in the coming weeks. He expects to see short supplies and the market signaling that we will need more oil very soon, probably by August.

The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, have been reducing production since May by 9.7 million barrels per day after coronavirus destroyed the demand for oil globally. This is equal to 10% of global supply. 

In July, record cuts will drop to 7.7 million BPD through to December.

Saudi Arabia’s energy minister said on Wednesday that OPEC+ is heading towards the next phase of its oil production cut pact. At the same time, experts expect the group to ease its pumping reductions as demand recovers.

Prince Abdulaziz bin Salman also said that effective oil cuts would be higher than 7.7 million barrels per day, thanks to a compensation plan by countries that overproduced in previous months. 

Just before an OPEC+ meeting, the Prince argued that his country would not increase oil exports.

Oil demand is likely to reduce by 435 thousand BDP in the Q2

According to the International Energy Agency, the coronavirus outbreak will reduce global oil demand in the second quarter of 2020 by 345 thousand barrels per day.

According to ISNA, on an annual basis, demand in the first quarter of 2020 is about 435 thousand barrels per day less than the same period last year. 

In a report by the International Energy Agency, apparently, the coronavirus outbreak has affected China’s economic growth and oil demand.

On the one hand, air and land transportation reduced in China. This has diminished the demand for jet fuel, gasoline, and diesel. On the other hand, economic activity has plummeted in the country. Wuhan, China, shares 4.5 percent of China’s GDP. Also, the cancellation of Chinese New Year celebrations and other public events has harmed Chinese consumption.