Oil prices could be in for a correction in the near term if fuel demand recovery further stalls amid surging coronavirus cases in the United States, Barclays said on Thursday, a day after the EIA reported a surprise crude inventory build.  

“We are not there yet in terms of fundamentals for the next leg higher,” analysts at Barclays Commodities Research wrote in a note, as carried by Reuters.

On Tuesday, oil prices hit their highest levels in more than four months, thanks to promising results in a coronavirus vaccine trial and the European Union reaching a historic stimulus package deal after five days of marathon talks. Prices returned to the levels last seen just before Saudi Arabia and Russia broke up the OPEC+ pact on March 6.

While vaccine hopes offset fears of surging COVID-19 cases in the U.S. earlier this week, the API and the EIA reported inventory builds in U.S. commercial crude oil inventories on Tuesday and Wednesday, weighing on oil prices and reigniting market concerns that the recovery in fuel demand in the world’s biggest oil consumer could slow down.

“The demand recovery that we have seen in gasoline over the last couple of months appears to have stalled, with implied demand coming in at 8.55MMbbls/d, which is still below pre-Covid-19 levels, and more than a 1MMbbls/d below the levels seen at the same stage last year,” ING strategists Warren Patterson and Wenyu Yao said on Thursday, commenting on the most recent trend in U.S gasoline demand.

“The fact that we have had a resurgence in Covid-19 cases across a number of states in the US has not helped the demand recovery, with some states tightening restrictions once again,” they said.

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Barclays warned today of a price correction in case of slowing demand, expecting Brent Crude to average $41 a barrel and WTI Crude to average $37 per barrel this year. For next year, the bank has a more optimistic view, expecting Brent to average $53 and WTI to average $50 a barrel.

Early on Thursday, WTI Crude was up 0.81 percent at $42.20 and Brent Crude had also gained 0.81 percent, to $44.61, as the U.S. dollar weakened.

By Tsvetana Paraskova for Oilprice.com

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