Over the past couple of weeks, oil prices have fluctuated up and down quite a bit, preventing crude oil from forming a consistent price trend. The reason for this high level of uncertainty and volatility is that the forces of supply and demand remain difficult to gauge at the moment.
In terms of demand, the coronavirus pandemic is the most deciding factor at the moment. Early on in 2020, the most pessimistic prognosis was that Covid-19 would remain a threat until August at the latest. However, July is ending and there are still many countries who have not reached the peak of their respective outbreaks, most notably the United States, Brazil, and India.
The situation in the US is of extreme importance, considering the country is the biggest consumer of oil in the world. However, the ongoing outbreaks there and lockdowns in some of the most affected regions of the country mean that there will likely be less demand for oil than usual.
Travel restrictions in Europe, where the countries who have recovered from the pandemic are trying to prevent people coming in from high-risk areas, are also pressuring oil prices, as they mean multiple flight cancellations.
Yesterday oil prices decreased to their lowest level in three weeks due to news that the economy of the United States contracted by a straggering 32.9% in the second quarter of 2020. A slowdown in the world’s biggest economy will most certainly mean a major hit to oil demand.
On the side of supply, what OPEC+ does is vital right now. The Organization of Petroleum Exporting Countries and their willing allies (especially Russia) did not want to keep production levels low past July when their current agreement expires.
Thus, from tomorrow, August 1, OPEC+ will be free to ramp up oil extraction despite the lower demand for oil. As a result, oil prices may be pressured again.
Nevertheless, today we are seeing an upward price correction after yesterday’s drop. Brent climbed up to $43.08, while the WTI brand of oil reached $40.13 per barrel.
