The bullish and the bearish case
Bearish case for oil
- Rising COVID-19 cases across the globe and growing return to national lockdowns.
- Turbulent US election fears have been weakening demand
- Hedge fund traders had been increasing their longs expecting OPEC+'s production cuts to be scrapped for the New Year. In the latest CFTC report money managers cut their net long US crude futures positions.
- Libya is returning back to full production and is expected to return to 1 mbpd in the next month or so. Currently production is now reported to be up to 850K bpd+
- Last week the EIA report did not help the market at all. US crude oil inventories increased by 4.32mbpd over the last week, much more than the little over 1mbpd the market was expecting
- A Biden victory is seen as oil negative as he shuns shale over a turn to greener power
- US drillers add most oil and gas rigs in a month since May 2018.
Bullish case for oil
- That OPEC+ will abandon propose production cuts due to come at the start of the year. November 02's recovery in oil was due to the Russian energy minister meeting with domestic oil companies and that discussed the potential for rolling over current production cuts for an additional 3 months until the end of Q1 2021.
- Possible vaccine news that helps the market recover
- Last night's inventory data showed a surprise draw of 8 million barrels.
However, as you can see in the near term the bias remains to the downside, so the recent strength should find sellers. Especially as Libya comes back on line (latest report is that they have hit 850K bpd) and rising COVID-19 cases hits oil demand.
