Will oil demand pick up this year?

Oil trading

At the time of writing, WTI and Brent are over $52 and $55 respectively off the back of this move which is designed to protect oil prices. Prices have undergone a rally in the back half of last year, primarily fuelled by two key decisions: 1) OPEC’s January production rise (though now tempered by Saudi Arabia’s pullback), and 2) the start of vaccine rollouts in key countries.

However, commentators have suggested a price correction might be on its way. Coronavirus continues to sweep across key buyer markets, despite vaccines starting to roll out across markets like the US. The death toll unfortunately keeps rising. Cases have also begun to soar again in China, putting further pressure on oil demand.

Last week, US oil inventories saw their highest drawdown since April. Inventories fell by 8 million barrels, totalling 485.5m. Before you get too excited, this is a yearly occurrence. Energy suppliers remove barrels from storage during this time of year in order to avoid hefty tax bills.

Conversely, US storage data reported a saw a 4.5m rise in gasoline stocks. According to the EIA, that’s the highest increase since April. The EIA had forecast a 1.5m barrel rise, suggesting that fuel consumption appears to be slacking across the US. Well, no one should be travelling in lockdown.

Distillate stockpiles, including diesel and heating oil, rose by 6.4m barrels, against predicted a 2.3 million-barrel rise.

So, will demand rise? It’s hard to say at this point. But if cases and deaths continue to mount, and restrictions on movement either continue or re-enter the picture, it may be unlikely. As such, prices may encounter resistance.

Natural gas

Natural gas prices gapped higher last week upon reports of colder weather hitting the US Midwest. Snow and ice is forecast, but warmer temperatures could be coming by January 18th.

Goldman Sachs on one hand is predicting a “perfect bullish storm” for natural gas prices in the next six months. It is maintaining its $3.25/mmBtu 2021 summer US gas price forecast vs forwards at $2.80, in order to correct what it sees as a 2.5 Bcf/d imbalance in the market through October 21st 2020.

US natural gas in storage fell by 130 bcf last week, according to the EIA. Storage inventories decreased to 3.333 trillion cubic feet for the week-ended January 1st.