WEEKLY ENERGY RECAP: December 11, 2020

Oil prices made their sixth consecutive weekly gain, despite unchanged fundamentals and bearish market developments, including increasing supplies, higher inventories and low refining margins.

Brent crude price almost hit the important $50 barrier for the first time since March 2020, which was the pre-pandemic price level. At the weekly closing, Brent crude price rose to $49.97 per barrel. WTI closed the week rising to $46.57 per barrel, the highest level in nearly nine months.

The upward momentum in oil prices is driven by improving market sentiment amid optimism regarding the coronavirus (COVID-19) vaccine. While market fundamentals remained unchanged, they could have been pressured further by the surprise surge in US crude oil inventories — up by 15.2 million barrels — and OPEC November crude oil production, which rose to a seven-month high of 25 million barrels per day (bpd), mainly as a result of increased Libyan output.

The US Energy Information Administration (EIA) reported the largest weekly inventories build in eight months, which came in parallel with the weakest gasoline demand since May. This helped to push the total US commercial crude inventories higher to 503.23 million barrels, which sent inventories to nearly 11 percent above the five-year average.

Furthermore, the US refining capacity remains low at 79.9 percent of total capacity, processing 14.44 million bpd, which is 14 percent below the five-year average. US crude exports plunged by 1.6 million bpd to just 1.8 million bpd, the lowest exports level since 2018, while US crude oil imports rose by 1.08 million bpd, as reported by S&P Platts.

Optimism for a faster recovery in demand, following the release of COVID19 vaccines, has offset a huge rise in US crude inventories. The market is also waiting for a speedy resurgence in oil demand from the OPEC+ decision to agree output cuts for the fifth year in a row. The improved global market sentiment reflected the world’s commodities markets, which has recovered well.

However, the upward movement in oil prices hasn’t been reflected yet in the global refining margins, which has remained relatively depressed even as the demand for the petroleum refined products has improved slightly since the easing of lockdown, but is still significantly lower than last year and prior years, which is reflected in lower refinery runs and extended shutdowns.