By Adedapo Adesanya
News that oil inventories fell in the largest producing country, the United States, boosted major oil benchmarks by 2 per cent on Wednesday backed by hopes that fuel demand will withstand the coronavirus pandemic.
The international benchmark, Brent crude futures was up by 84 cents or 1.89 per cent at $45.34 per barrel, while the US benchmark, West Texas Intermediate (WTI) crude futures increased by 95 cents or 2.28 per cent to $42.56 per barrel.
Prices had found support when data from the American government through the Energy Information Administration (EIA) on Wednesday showed that crude inventories fell by 4.5 million barrels.
This marked a consecutive week of output drops after it fell to 10.7 million barrels per day from 11 million barrels in the previous week, according to the report.
Another industry group, the American Petroleum Institute (API), reported a weekly decrease of roughly 4 million barrels, according to data released on Wednesday.
The biggest obstacle for the oil market continues to be the uncertainty surrounding the coronavirus and with the global tally for confirmed cases of the coronavirus at more than 20.7 million, there are still some fears about demand worries.
Meanwhile, in a monthly report issued Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) said it now expects global oil demand growth to fall by 9.1 million barrels a day this year to 90.6 million barrels per day, due mainly to lower economic activity levels in developing economies.
The expected decline in demand growth is 100,000 barrels a day lower than last month’s forecast, spelling hope that the market might hold on through the pandemic.
“The forecast assumes that COVID-19 will largely be contained globally, with no further major disruptions to the global economy,” OPEC said in its report.
However, it added that “the global economic growth forecast for 2020 is revised down to -4.0 per cent compared to last month’s forecast of -3.7 per cent, following a further negative impact from the COVID-19 pandemic.”
Demand growth in 2021 is expected to rise by 7 million to 97.6 million barrels per day unchanged from July’s forecast while demand for OPEC crude in 2021 is anticipated to average 29.3 million barrels per day in 2021, around 5.9 million barrels per day higher than the average of 2020.
The COVID-19 pandemic, which began in the first quarter of 2020, has quickly spread around the world, causing a recession in the global economy as well as an unprecedented shock in global oil demand, leading to a large supply glut on the oil market.
Another factor that could boost the market, however, remains undecided. Investors are now showing uncertainty over the indecision in the US over a stimulus package meant to support recovery from the pandemic and this may weigh on prices.
Dipo Olowookere