Oil prices can’t be rising forever, especially in a market where producers scramble to limit the supply beast while demand fails to meet fast recovery hopes.
Even if the oil price is falling today the barrel value is still very healthy. But when a rally has been going strong non stop for over a week, stepping on the brake pedal would happen at some point, and Friday is always the trader’s favorite day for price corrections.
The decline started on Thursday. OPEC and IEA recently indicated that there are still concerns about the pace of oil demand’s recovery and its level against supply volumes. Traders started listening and the bubble broke.
On Fridays traders take risks off their books before the weekend, as the market is closed and unpredictable events can create a different environment for the next business day.
The modest decline that is happening is not killing the market, it is merely a price correction and traders seem to acknowledge bearish signs but are not jumping the gun on the sell button.
As long as prices stay around the 60-dollar mark, the level is keeping the market on the green for producers that have suffered the previous year.
What will determine a solid price direction is going to be visible in coming weeks. It’s refinery runs and crude inventory levels.
Crude inventories in the US have seen back to back draws, a development that has backed the recent price gains.
If crude draws halt next week that could take the bears out of the cave and prices can lose a bit more.
But spring is the season of refinery maintenance and everyone will be looking at how refinery demand will develop during this time.
If the market sees less refinery input, that will be another bearish sign.
With vaccine delays, renewed lockdowns and sluggish demand there is not much immediate upside for oil. Winter has been good for prices and now is time for a slowdown, with the next sunny days for oil coming again in the summer season.