Oil markets are looking for demand growth to sustain any upward price movements beyond their current levels $40.
Prices on Friday saw a second weekly gain with global benchmark Brent on $44.40 and West Texas Intermediate (WTI) closing at $42.01, coming at gains of 0.9 per cent and 1.9 per cent respectively.
Senior Director, Market Economics, Emirates NBD, Edward Bell, says “volatility in oil markets has been trending significantly lower in recent trading sessions, moving to almost its lowest year-to-date. Most of the action for oil markets now will relate to demand conditions as the market has already priced in the Opec+ supply cuts and adjustments outside of Opec+.”
However, compliance with OPEC+ oil output cuts is seen at around 97% in July, two OPEC+ sources told Reuters on Monday, two days ahead of a meeting of key OPEC+ producers to review adherence with their production pact as demand slowly recovers.
The figure has not yet been finalised by a technical panel of key OPEC and non-OPEC producers, known as the JTC, which was meeting on Monday, sources said.
A ministerial OPEC+ monitoring committee, known as the JMMC, is meeting on Wednesday to review the oil market and compliance with the global oil supply reduction pact.
The JMMC advises the Organisation of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+.
OPEC+ sources said they expect no change in the current production agreement and would rather focus on adherence by countries such as Iraq, Nigeria and Kazakhstan who have pledged to improve their compliance.
In August, OPEC+ eased its agreed cuts to 7.7 million barrels per day (bpd) from 9.7 million bpd previously.
“There is no change”, one of the Reuters sources said.
Russian Energy Minister Alexander Novak said last week there have been no additional proposals to change the deal.
OPEC oil output has risen by over 1 million bpd in July, according to a Reuters survey, as Saudi Arabia and other Gulf members ended their voluntary extra supply curbs on top of the OPEC+ deal while other members made limited progress on compliance.
OPEC+ has been cutting output to tackle the fallout from the COVID-19 pandemic which has hit oil demand.
Brent crude LCOc1 was down 13 cents, or 0.3%, to $44.67 a barrel by 1048 GMT, and West Texas Intermediate U.S. crude CLc1 was down 4 cents, or 0.1%, to $41.97 a barrel.
According to Senior Oil Markets Analyst at Rystad Energy, Paola Rodriguez Masiu, “for a sharp push higher we expect oil prices would need a much stronger demand signal, either in the form of substantial new stimulus measures or movement toward a coronavirus vaccine.”
And with demand unlikely to see a significant rise, prices are expected to stay where they are, he says, pointing out, ‘’the market always sees what lays behind. And a grim demand recovery outlook is a clear background now on a global level.
“Under the current supply-demand trends, we see prices unable to record further sustainable gains for a few months, until supply deficits return during the last quarter of the year,” she added.
Demand projection for this year was also recently downgraded by both Opec and the International Energy Agency (IEA) in their monthly reports, with Opec estimating demand to fall in 2020 by 9.1 million barrels per day and the IEA projecting a fall of 8.1 million barrels.
“Recent mobility data suggest the recovery has plateaued in many regions, although Europe, for now, remains on an upward trend,” The IEA stated in their report.
“For road transport fuels, demand in the first half of 2020 was slightly stronger than anticipated, but for the second half we remain cautious and the upsurge in Covid-19 cases has seen us downgrade our estimates, mainly for gasoline.”