- WTI under pressure on demand-side despite supply cuts feeding through to data.
- Fed sombre note leaves markets in limbo and looking to GDP as next guide.
WTI is trading at $41.27 at the time of writing in a consolidation of the jittery environment between the $40 and $42 levels.
Prices rose slightly on Wednesday, however, after a steep drop in crude inventories. Nonetheless, rallies are capped pertaining to record days for coronavirus cases worldwide.
US crude oil inventories fell by 10.6 million barrels last week to 526 million barrels, the Energy Information Administration said, which was the largest drawdown since December.
Net US crude imports fell 1 million barrels per day to 1.9 million bpd,
Supply cuts agreed in April by theOrganization of the Petroleum Exporting Countries and its allies, finally being realized are likely playing their roll in the data.
Energy markets remain bounded by concerns surrounding demand, while at the same time, OPEC+ supply is on the rise and US production has ticked higher as well, keeping expectations in check,
analysts at TD Securities said.
Looking forward, however, while US production creeps off the lows, we note that the evidence suggests that shale production growth may not see a mass revival just yet. The cost of capital for production has risen, potentially permanently so. This creates a set-up in which energy prices could potentially trade significantly higher in the future.
Meanwhile, it was a sombre note from the Fed today.
Fed Chair Powell said the central bank will sustain historic monetary policy until it’s confident the economy has navigated through the Covid-19 pullback.
“We are committed to using our full range of tools to support the economy in this challenging time,” Powell said. “We have held our policy rate near zero since mid-March and have stated that we will keep it there until we are confident the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals.”
For the rest of the week, tomorrow’s release of US Q2 Gross Domestic Produce will provide concrete evidence on how the pandemic has affected activity.
We will be able to gauge the magnitude of the output gap that needs to be closed and thus depict a probable scenario for energy demand implications.
US Q2 GDP is forecast to fall by a record 35% saar, roughly equating to a 9% QoQ drop.