It’s the first business day of August, the month traders were bracing for, as part of the oil production that OPEC+ has curtailed is returning back on line.

Naturally, as oil demand seems to be stalling and the recovery muted for a while, traders are worrying about the effect of the extra supply on balances.

A dip in oil prices is therefore justified on the above concerns and today prices are seeing some mild losses as expected.

This is an initial reaction of course and the rest of the month should roll on demand signals and taking into account how the Covid-19 pandemic develops.

A mini-glut, created by the returning oil production is to be expected for the next 4 months, but demand should pick up from November, so the bearish indicator is likely to only last for the rest of the summer and autumn’s summer blues.

The wild card, however, is Covid19 and how it progresses. Our modelling shows that a mild second wave will have an effect this summer and autumn and will fade away till February. But there is a downside in this and if the virus is not contained the effect could spiral further.

News from Europe are not as the market hoped for, infections are rising in countries that had so far managed to contain the virus, as lockdowns have been scrapped, and this is a concern, for markets too.

The losses this morning are limited, as oil prices are supported by positive surprises in the leading Chinese manufacturing index and Japanese GDP for 2Q, which have boosted spirits in the equities markets in Asia.

Today’s data releases will provide further clues for the short term economic recovery globally for August, with the global PMI starting with China’s positive print of 52.8 this morning.

However, these positive surprises may not be enough to convince oil traders that all is well ahead for the supply-demand rebalancing.

OPEC+ cut tapering has begun, Saudi Arabia will publish its official selling prices for September (expected to reflect a weakening crude market) and global oil supply is set to increase by nearly 2 million bpd m/m in August.

Meanwhile, the flat oil demand is also visible via real-time road and aviation indicators.

Overall, we believe oil markets will see more volatility during August, compared to the anemic development during July, and prices will be affected on how quickly this extra supply returns. Traders will be keeping an eye on real-time flows, and so will Rystad Energy.