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Oil snaps right back
Steve Sutherlin Petroleum News
Alaska North Slope crude catapulted out of a seven-day-long losing streak on Monday Aug. 23, up more than 5% - a gain of $3.51 - to close at $68.46 per barrel. West Texas Intermediate jumped $3.32 higher to close at $65.64, while Brent added $3.57 to close at $68.75.
The price jump was underpinned by a 0.4% slide in the dollar index, which had hit its highest level in more than nine months Aug. 20.
Price gains were accelerated by a fire that broke out on a Pemex offshore rig in the Gulf of Mexico Aug. 22, taking 440,000 barrels of oil per day - almost one quarter of Mexico’s production - offline. Five workers died in the blaze, six were injured, and two were missing.
The fire, in Pemex’s most important oil development, Ku-Maloob-Zaap, idled 125 nearby wells that were dependent on the rig for gas and electricity.
On the demand front, fears were quelled by a report from China’s National Health Commission that the country had no new locally transmitted COVID-19 cases on Aug. 23, for the first time since July.
Oil traders had been rattled by a breakout of the highly contagious delta variant of the virus discovered July 20 in the city of Nanjing, which exploded into the worst outbreak in China since 2020.
In the United States, the Food and Drug Administration announced Aug. 23 that it had granted full approval to the first COVID-19 vaccine.
The vaccine, approved on an emergency basis as the Pfizer-BioNTech COVID-19 Vaccine, will be marketed as Comirnaty, for the prevention of COVID-19 disease in individuals 16 years of age and older, the FDA said in a release.
The vaccine will continue to be available under emergency use authorization for individuals 12 through 15 years old, and for the administration of a third dose in certain immunocompromised individuals, the FDA said.
The approval cleared the way for the Pentagon to broadly require the shots for military personnel and will likely lead to additional vaccine requirements in the workplace. Health officials are hopeful that FDA approval will allay fears among vaccine-hesitant individuals as well.
Some analysts have postulated that increased vaccine use will lead to a surge in business related travel in the fall and winter.
Losses reversed Gains continued Tuesday Aug. 24, with ANS and Brent both closing above $70.
ANS gained 62 cents Aug. 25, to close at $71.03, WTI gained 82 cents to close at $68.36, and Brent gained $1.20 to close at $72.25. In three days, the indexes turned in a gain of about 10%, essentially recovering losses incurred over the seven-day slide that ended Aug. 20 with ANS had closing below $65.
U.S. Energy information Administration reports released Aug. 25 showed that motorists were continuing to take to the roadways despite the delta variant breakouts.
U.S. crude supplies dipped to a level not seen since January 2020 and gasoline inventories surprised analysts with a robust drop.
U.S. commercial crude oil inventories for the week ending Aug. 20 decreased by 3.0 million barrels from the previous week to 432.6 million barrels, about 6% below the five-year average for this time of year, the EIA said.
Total motor gasoline inventories decreased by 2.2 million barrels for the period, putting them about 3% below the five-year average for this time of year, it said.
Goldman Sachs remains bullish Early on Aug. 26, Pemex CEO Octavio Romero told Mexican journalist Carmen Aristegui that Pemex had so far recovered 71,000 bpd of production shut in from the platform fire, and the company expected to add an additional 110,000 bpd later in the day, according to a Reuters report.
Brent and WTI were just above 0.5% below Wednesday’s close, in early trading as Petroleum News went to press.
Some analysts are calling for oil to settle into the $60s, but Jeffrey Currie, Goldman Sachs head of commodities research continues to call for oil to reach $80 in the fourth quarter.
In a note published Aug. 23, Currie said that the selloff was overdone in part because supply has stayed low, and because producers are investing too little in new projects to catch up to future demand growth, Barron’s reported.
Currie said the delta variant “will prove to be a transient event, and that U.S. producers will retain their newfound discipline, as the drivers of our bullish view shift from cyclical demand impulses to the structural binding constraints of underinvestment in supply that were only accelerated by Covid-19.”
Goldman Sachs said in a note that appeared on Forex Live that delta and China are currently overshadowing a tightening market.
“We believe the micro - steadily tightening commodity fundamentals - will trump these macro trends as we move towards autumn, pushing many markets like oil and base metals to new highs for this cycle,” Goldman said, adding that the pace of growth has likely peaked, something that could dampen other risk trades, but for commodities it’s overall demand that matters.
Tracking mobility, Goldman said that the hit to Chinese demand is only 0.7 million bpd and that overall global demand remains near 98 million bpd with demand strong outside of Asia.
Globally, Goldman sees a 1.5 million bpd deficit in the past month and “precariously low” storage levels in emerging markets excluding China.
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