By Geoffrey Smith
Investing.com -- Crude oil prices hit a two-month high on Wednesday before retreating as the Organization of Petroleum Exporting Countries cut its forecasts for global demand for a fifth straight month.
By 9 AM ET (1400 GMT), U.S. crude futures were up 3.0% at $42.59 a barrel, having earlier hit a high of $43.05 – the first time it’s been that high since early September. The international benchmark Brent futures contract was up 2.9% at $44.84 a barrel.
U.S. Gasoline RBOB Futures were up 2.3% at $1.2212 a gallon, only fractionally off a five-week high that they hit earlier.
Futures retreated, albeit only modestly, after OPEC trimmed its forecasts for global oil demand by around 300,000 barrels a day both for 2020 and 2021, owing to the fresh wave of Covid-19 that is hitting northern hemisphere economies as they head into winter.
The reduction for this year is especially brutal, given that only two months of the year remain. It translates into a reduction of 960,000 barrels a day in OPEC’s estimate of what it needs to publish to balance supply and demand.
The forecasts form a more compelling statistical argument for putting off the production increase that OPEC and its allies, chiefly Russia, have scheduled for the start of next year. The OPEC+ bloc is due to take a decision on that in a meeting at the end of the month, and the bloc’s two key players, Saudi Arabia, have both signaled their openness to “tweaking” that agreement if market conditions require it.
Market sentiment continues to be underpinned by Monday’s news from Pfizer (NYSE:PFE) that its Covid-19 drug was 90% effective. Hopes for widespread distribution of an effective vaccine are now reviving demand expectations for 2021. However, the mood is also being supported by signs of short-term demand holding up better than expected, despite the rampant spread of Covid-19 across the U.S.
American Petroleum Institute data released on Tuesday showed a 5.15 million barrel drop in crude stocks last week, a week when many had expected volatility caused by the latest hurricanes to pass out of the calculations. The U.S. government’s inventory data will be published on Thursday this week, a day later than usual, owing to the Veterans’ Day holiday today.
Also on Thursday, the International Energy Agency will present its monthly report on the world oil market, which will be scanned closely for corroboration of OPEC's view.