Crude prices performed a temporary upside move as oil output fell by 21% in the Gulf of Mexico as the Sally hurricane approached the Gulf coast. Some upside factors, like an expected fall in crude reserves that is due to be announced today by the Energy Information Administration after The American Petroleum Institute (API) announced that reserves in the United Stated dropped by 9.5 million barrels also pushed prices higher.
Brent crude prices, after falling from $46 per barrel since September, are in a fragile balance around $40 per barrel, as the global economy is displaying a slow pace of recovery and weak demand for crude. Crude reserves are still well above average consumption levels by 600 million barrels compared to 2019 levels, according to Morgan Stanley estimates. In its September report OPEC downgraded its global demand forecast for oil in 2020 to 90.2 million barrels per day from 90.6 bpd in the previous report.
China is also lowering its crude purchases after it filled its reserves at record volumes this summer at low prices. Saudi Arabia has lowered export prices for oil deliveries in October for consumers in Asia by $0.9-1.5 per barrel. Kuwait, Iran and the United Arab Emirates followed this move. UAE's ADNOC went even further and lowered export prices for November by 25% across all grades. Fears of a second wave of the coronavirus in Europe and Latin America are also seen to curb market optimism.
However, risk sentiment is also seen to be a support factor for crude prices too. CBOE’s VIX volatility index went down from its 38.3 peak in the beginning of September to 25-26 points. That halted crude prices from slumping down.
Traders are waiting for the results of the OPEC+ meeting that are expected to be announced on Thursday. Rumours that Iran could leave the OPEC+ deal are also adding uncertainty.
So, there are many controversial drivers in the oil market that may halt prices from any strong directional movements. Thus, a sideways movement within the range of $39.5-41.5 per barrel may become a primary scenario for crude prices in the upcoming days.
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