After reaching multi-year highs on Monday, oil prices have retreated, trading in a range as September industrial production in the United States dropped, dampening initial demand optimism.
Because of the persistent worldwide scarcity of semiconductors, motor vehicle production fell to its lowest level in seven months in September. This is more indication that supply limitations are impeding economic development.
As a result, the oil market began with a lot of vigor, but negative data on industrial output in the United States prompted investors to lose faith in demand, and China published statistics that further exacerbated their concerns.
As of 11:46 a.m. EST (1546 GMT), Brent crude oil futures were down 20 cents, or 0.24 percent, at $84.66 a barrel, from their recent high of $86.04 set in October 2018.
WTI oil futures in the United States were up 17 cents, or 0.2%, at $82.46 a barrel after reaching $83.87, their highest level since October 2014..
Each of these contracts had a weekly increase of at least 3% last week.
After the COVID-19 epidemic, market participants began to loosen limitations, and a colder winter in the northern hemisphere helped drive prices upward.
For power generation alone, gas-to-oil switching may raise demand by up to 450,000 barrels per day in the fourth quarter, analysts at ANZ Bank wrote in a report.
According to senior OANDA analyst Edward Moya, cold weather in the northern hemisphere would exacerbate the current oil supply shortfall.
Since the weather has already turned colder in the north, “the oil market shortfall is prepared to become worse,” he added.
There appears to be no major increase in supply from OPEC+ or the United States as coal, power, and natural gas shortages lead to increased demand for crude.
PM Fumio Kishida stated on Monday that Japan will push oil producers to boost supply and take efforts toward reducing the effect of rising energy costs for industry.
Power shortages, supply bottlenecks, and rare COVID-19 breakouts weighed on Chinese economic development in the third quarter, according to official figures.
According to official data, China’s daily crude processing rate fell to its lowest level since May 2020 in September due to a lack of feedstock and environmental inspections crippling refinery operations, while crude import restrictions for independent refiners tightened.
Commodity strategist Warren Russell of Bank of America (NYSE:BAC) stated in a note that global trade has quickly rebounded from epidemic lows.
Year-to-date trade levels are up 13%, while 2019 levels are up 4%.
Analysts say that when economies recover from the epidemic, oil demand will rise.
Analysts predict significant performance from financial assets like oil until 2021.