Based on the price action the rest of the week, Monday’s sell-off represented a knee-jerk reaction to the virus news rather than the start of a change in trend. This assessment became more evident on Wednesday when oil prices rose more than 2%, boosted by draws in U.S. inventories of crude, gasoline and distillates that lifted investors’ hopes for some return in fuel demand.
The markets were also supported from news that Britain and the European Union had struck a narrow trade deal on Thursday, swerving away from a chaotic finale to the Brexit split.
However, there were some possible headwinds developing. U.S. energy firms last week added oil and natural gas rigs for a fifth week in a row as higher energy prices prompted producers to keep returning to the wellpad in recent months. This threatens to increase supply at the same time the demand outlook is cloudy because of the rapidly spreading coronavirus.
Perhaps also helping to cap gains were concerns about the added supply from OPEC+ that is expected to hit the market after February 1.
Traders are showing little reaction to President Trump’s signing of the pandemic relief and government spending bill. This suggests the focus will be on future demand and the OPEC+ decision to increase supply.
Reuters is reporting that Russia expects to support an increase in oil production by the group, known as OPEC+, of another 500,000 barrels per day (bpd) from February at next month’s summit of the leading global oil producers, Russian Deputy Prime Minister Alexander Novak said.
In comments, cleared for publication on Friday, Novak also said that Moscow views an oil price between $45 and $55 per barrel as the optimum level to allow for recovery of its oil production, which has been significantly reduced as part of the OPEC+ supply deal.
The recent price action has put Brent crude oil in the sweet spot for a “yes” vote by Moscow. The group holds its next online summit on January 4, when it is expected to discuss whether to release another 500,000 bpd in February.
“If the situation stays normal and stable, we will support this position (increase by 500,000 bpd),” Novak told reporters at a briefing held in the government’s headquarters.
For a look at all of today’s economic events, check out our economic calendar.