The surge in Covid-19 cases hits Oil demand

After experiencing massive gains at the first half of the year due to high demand coming from China, prices of oil have continued to slide due to the uncertainty surrounding Covid-19.

Reports indicate that the resurgence of Covid-19 infections has slowed down demand on the black gold. China which is the second-largest consumer of oil has witnessed a slow economic activity as social restriction has been put in place to curb the spread of the virus. In the month of July, China’s oil import stood at 9.7 million barrels per day below 10million bpd for the fourth month running. Export data and factory orders were down in July indicating a stagnation in economic growth.

How surge in Covid-19 hit oil?

Demand outlook in other parts of the world is expected to decline as lockdown measures have been reinstated amidst increased production by OPEC. We can recall that the group had agreed to production cuts by September 2022 which will see a phase out of 5.8 million bpd.

The EIA (Energy Information Administration) forecast that Brent crude oil prices in the short term will average around $72 per barrel from now till the end of the year. However, this analysis is still dependent on the current situation of the pandemic and also economic growth globally.

Technical outlook

UKOIL Chart Daily Time frame

As rising Covid-19 cases and social restriction measures continue to hurt oil prices with global demand dropping, $68 price level still holds the key for buying interest. Price made a rebound on 9^th of August from that level it is likely we see some price action around there. However, if the current coronavirus infection spirals out of control with the on-going oil production, we could see a further decline below $68 price level with the next support coming at $65.

Adegbotolu Kehinde Erastus – Market and Research Analyst