Oil price gains stability: this is a key factor!


oil price monday

Oil price regained its position just over $40, despite the gloomy forecast about a prolonged bearish trend in the light of the second wave of the coronavirus pandemic.

It’s undeniable that the infections are on the rise, especially in Europe and to some extent, in the rest of the world too.

Unlike during the first wave, however, the death rate remains very low and it is universal.

As governments turn to strict preventive measures at the expense of certain civil liberties that we used to take for granted, the former appear to be working in keeping the menace at bay.

For instance, in Australia, the outbreak is dying down and the government is easing the tough measures in proportion to the success in controlling it.

In short, the world has accepted the reality and learned to live with it; it’s just a case of adjusting to the New Normal.

Unlike during the first lockdown, we still see cars on the roads and people commuting to work; the schools are open. These facts indicate that demand for oil will continue to grow – perhaps, a bit slowly at first until things pick up.

The only factor that still weighs heavily on the demand is the recovery of jet fuel needs. Since air travel is nowhere near that it used to be at the same time next year, the low demand of this particular fuel will make a significant impact on the supply-demand axis in the short run.

I personally believe that the US crude oil inventories still play a major role in balancing the price equation.  For successive three weeks it was on the decline and the stability of oil price, in this context, is not merely a random event.

All major economies handled the crisis that stemmed from the pandemic fairly well, as feared ‘blood bath’ did not materialize. Therefore, the oil price will recover too in proportion to the tangible optimism that we begin to feel in the next few months.

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