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The outlook for oil demand remains challenging as prospects of new mobility restrictions continue to rise. Lower refining margins and a rising possibility of storms in the US are leaving little room for refiners to increase their demand materially. Elevated inventories of oil and oil products remain another drag for the sector, per ANZ Bank. WTI holds gains near $40.50 on Friday but is heading for a weekly loss.

Key quotes

“The recovery in oil demand is slowing as mobility restrictions are reimposed in some countries. Rising daily COVID-19 case numbers are the key risk to a sustainable recovery in energy demand.”

“Demand for oil products is constrained by several factors at the moment. Subdued refining margins could lead to longer maintenance shutdowns. The increased likelihood of hurricanes in the US due to La Niña may disrupt refinery operations.”

“Inventories have started normalising from their Q2 highs. The level of global floating storage has been retreating as well. Nevertheless, stocks remain burdensome and recent steepening of the forward curve suggests a well-supplied market.” 

“LNG fundamentals look promising. Demand is recovering on the forecasts of colder winter, as there are likely to be more days in the US with temperatures that will prompt domestic heating. Diverging Asian and US LNG prices makes US gas more competitive. China can ease coal import restrictions to impede the rise in domestic prices and replenish its coal inventories ahead of winter demand.”