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US stockpiles decline for fifth week in row as there appears 'no end in sight' for low crude prices

On Friday, Brent crude was above US$45, and WTI holding above US$43 a barrel

Exxon Mobil Corporation -
In its August report, the EIA expects continued weakness in oil demand for the rest of the year and possibly until 2021.

If oil producers wanted a stable oil price, they seem to be getting it, but at a level much lower than they'd hoped for.

The fallout from Covid-19 continues with no unified direction on demand or economic recovery.

This 'lower for longer' period, hovering in the early forties sees no end in sight and in Friday trading, we’re seeing the same numbers with Brent crude looking a bit stronger this week, above US$45, and WTI holding above US$43 a barrel.

Hurricane hits

Hurricane season arrived in strength with a Category 4 storm hitting the southern coast of the US.

Making landfall on Thursday, residents in Texas, Arkansas and Louisiana braced themselves for the “catastrophic” storm, leaving six people dead and causing power outages and much regional destruction.

With winds of up to 150 miles per hour, Hurricane Laura was among the strongest of major storms in the region.

Oil refineries in Louisiana suffered damage, but no major supply outages were reported. Around 3 million barrels of refining capacity was offline before the storm hit and the US Energy department said they did not experience any “major facility damage” and expect a swift recovery.

Oil inventories in the US fell last week by 4.7 million barrels a day, according to the Energy Information Administration.

This has been the fifth straight week of declines for US stockpiles, with gasoline stocks down 4.6 million barrels.

In its August report, the EIA expects continued weakness in oil demand for the rest of the year and possibly until 2021. The EIA lowered its US oil production projections for 2020 to average around 11.3 million barrels a day.

Prospects of a second spike

Oil demand remains lower around the world while producers are cautiously watching the prospects of a second Covid-19 scare in many countries.

India is facing its worst recession on record, with devastating consequences on its economy. The virus has spread in India at a faster rate that many other countries, impacting more than 3.3 million people.

The Indian economy shrank more than 18% this year with expectations of a further contraction in months to come. India is Asia’s third largest economy and has been a strong oil consumer in recent years.

OPEC and friends found harmony at the last ministerial monitoring meeting, but the Russian President, Vladimir Putin said he would like to see higher oil prices.

Speaking on a Russian TV interview, Putin said he wanted to see a price stronger than US$46 a barrel.

The President was talking about the impact of Covid-19 on the Russian economy and said that a higher oil price would help the country’s budget.

Russia’s economy is expected to decline by 6% this year, the biggest fall in 11 years, according to the World Bank. While many of Russia’s producers would like to export more oil, the Energy Minister, Alexander Novak, with the blessing of the President, has pledged commitment to the agreed OPEC production levels, at least for 2020.

Dow Jones re-shuffle

There was a re-shuffle on the Dow Jones index this week, bidding farewell to oil giant Exxon Mobil (NYSE:XOM) and a host of other long-term players.

The Dow re-shuffles every few years, last time was seven years ago, but ExxonMobil, once the biggest companies in the world has been losing impact in recent years.

Tech stocks are trending and making money these days, so not everyone gets to stay in this prestigious portfolio. There’s been a steady decline in popularity of oil major stocks in recent years, loosing valuation with a 40% fall this year alone.

While the stock markets are picking up in recent weeks, the Dow Jones Index is still off its highs. The Dow Jones still remains a respected benchmark based on market value and industrial strength. Chevron (NYSE:CVX) is the only pure oil player that remains on the Dow.

As we start the final month of the third quarter, the oil price remains range-bound with little news to boost its value.

Getting through the end of year with any small signs in economic activity will be greeted warmly by producers.

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