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Crude Oil goes on a morning bungee jump before recovering

August 20, 2020

After a rapid fall, the oil market has recovered most of early morning losses. WTI is about 30 cents lower in the second contract, climbing back from lows which were -1.45 on the day.

 

Traders are still trying to explain the price action for the sudden drop and rebound. One explanation cited higher jobless claims. The problem with that explanation is that the market did not drop until 30 minutes after the report was released. Another explanation is that there are sellers of Cal 2021 capping the market at $45, buyers grew tired, and word leaked from an OPEC+ report about a possible covid risk scenario where demand would suffer into the end of 2020. That spooked the market enough to send it down, yet prices bounced back anyway. There is not big length in the market which would extend the market down; if the market trades and stays lower it will be because of less oil demand/more oil supply, not because of a speculator-led drop. This illustrates the point that unless everyone knows that (Covid) demand is going to weaken, there is not going to be the selling in front of that.

 

Separately, Gas is consolidating gains after the EIA reported a +43 Bcf injection this past week. The market was expecting an injection of +42 Bcf. Heat in the Western U.S., recovering LNG demand, leveled off production at ~88 bcf/d and record low rig counts are firming prices. 



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