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Oil Wakes Up with Hangover

For oil, the beginning of this week is like the morning hangover following a good night out that went a bit too far.

That’s according to Rystad Energy’s head of oil markets, Bjornar Tonhaugen, who said the decline of oil prices this morning is a perfect example of how a good run of bullish news gets the market too far, with traders scrambling to correct price levels once the dust settles.

“The end of last week was a great one for oil as the deal OPEC+ struck to only raise production by 0.5 million barrels per day instead of two million barrels per day from January relieved the market, which had been taken by surprise after a surprise deadlock earlier in the week,” Tonhaugen said in a statement sent to Rigzone.

“Brent in particular nearly touched the $50 mark, ignoring all logic of short-term fundamentals,” he added.

“With the OPEC deal in the bag, now traders looked back at fundamentals, demand and supply, and they were forced to come back to earth as things are not looking good in the short-term,” Tonhaugen continued.

The Rystad Energy representative noted that oil demand has been like a punchbag since last month, hit from all sides by global lockdowns. He outlined that most of the world is now also bracing for the result of the coming festive season’s social gatherings.

“As lockdowns will soften during Christmas, to sweeten the pill for the already struggling society, there are fears that this may come at a cost, with infections possibly rising again, meaning new restrictions may also be needed going into 2021,” he stated.

Tonhaugen also pointed out that supply is about to come back from regions the market wasn’t immediately expecting.

“The oil rig count is growing by the week in the U.S., which implies a pickup in activity and subsequent production,” he said.

“In the Middle East, Iran said it is getting ready to open shop for exports at full capacity in the first quarter of the coming year, expecting easing of sanctions when the new U.S. administration takes office,” he added.

“Libya’s output is also rising towards its full potential slowly, a silent oil flow that keeps balances tight, helping create a surplus in December,” he continued.

Tonhaugen noted that the oil market will see better days in 2021 but warned that short term hurdles will constrain prices.

Author, andreas.exarheas

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