Oil prices are about to close the week with mild losses as demand concerns are spreading pessimism in the market.

The arrival and extraordinarily rapid spread of virus mutations in Brazil and India are painting a much darker future phase of the pandemic, one in which current known mutations are able to spread, also creating environments that could yield their own new dangerous virus variants.

When infections rise in such populous countries such as India and Brazil, that can only mean more trouble for oil demand, as to counter the infection surge restrictions will limit road fuel consumption.

Covid-19 lockdowns and traffic limitations are continuing to weigh on oil prices and it will take some time to reach the other end of the tunnel, some time to vaccine enough people to justify reopening economic activity and travel.

A focus on the current situation is pushing down oil prices, but we remain bullish on the vaccine campaign curve, and summer oil demand still looks poised to pop, so we expect to see an upward price correction in Brent towards $66 per barrel in 3Q21.

There are some positive developments that keep prices from falling further. Oil should continue to get by with some help from the Fed, as the US central bank signaled yesterday it will continue its hundred-billion-dollar monthly bond purchasing program, and that interest rates will not be raised just yet.

This current US monetary policy will continue to put downward pressure on the dollar, and potentially boost oil, which becomes “cheaper” for physical importers in dollar terms, as well as an attractive hedge against inflation for non-physical buyers.

Today, news reports of Russia’s 2035 Energy Strategy began appearing in the press, and the Energy Ministry’s most likely scenario for future oil production suggests that the country may have already passed peak oil production at 11.25 million bpd in 2019, but production will still be robust through 2029 when it hits 11.15 million bpd, but then decline towards 9.45 million bpd by 2035.

The main reasons given in the reports are the depletion of mature fields as well as high taxes. However, if Arctic projects, such as Rosneft’s Vostok Oil, were to receive even more generous tax breaks from the government, Russia may be able to keep oil production on an upward trajectory into the early 2030s.

Either way, a definitive recognition that Russian supply will indeed begin to decline in the medium term will be music to OPEC producers’ ears in terms of a key competitor making way for more Middle East OPEC barrels on the market.

At the same time, it puts into question Russia’s short- and long-term commitments to being the biggest part of the “plus” in OPEC+.

What traders will be looking for is to see how gasoline stocks will perform in the coming weeks. Recent stockpiling of gasoline has raised concern over the recovery of road fuel demand, which is the key market that will lead the near-total oil demand resurrection.

It is still early, but later this month markets may react and amend oi pricing as we approach May, a month when OPEC+ will start its gradual production boost.

As economic policies stabilize and vaccination campaigns progress, the market is reaching a stage, and is at a price level, where measuring supply and demand will be the main indicator to form oil pricing going forward. What will define the price direction is how quickly demand can overcome the Covid-19 hurdles and keep up – or exceed – supply.