Oil prices have been fluctuating around yesterday’s close today as the market waits to grasp what will weigh more heavily on demand, seeing a rise in Covid-19 infections in India and Japan but a demand uptick in the US and Europe.

Indian and Japanese Covid-19 infection numbers have worries traders during the week and have caused prices to head for a weekly decline.

As infections rise in the two major economies it is not only domestic oil demand that can take a hit but also transport of people and goods internationally.

The reason why oil prices are not falling further today, remaining relatively strong, is signs of stronger demand from the West.

Over the past four weeks, demand for motor gasoline in the United States averaged 8.9 million barrels a day, up by 61.5% from the same period last year, and we see demand in the country rising following a steep recovery trend as the summer driving season begins.

In addition to positive indications from the US, in Europe – which has been under strict lockdowns since some time -  there is light in the end of the tunnel. April’s Eurozone PMI data came up surprisingly positive, a sign that demand is ticking up. Also, lockdowns are expected to slowly be withdrawn as we approach the summer season, with France already removing some restrictions from the coming week. 

The current market price structure is anticipating what we see in our crude balances –a tight summer 2021.

If demand recovers this summer, as is widely expected, we find that OPEC+ might need to ramp up supply far beyond current July 2021 targets, with more than 2 million bpd ramp-up over the three months, otherwise we may see huge crude stock draws in August and September.

Huge crude stock draws in the second part of the summer season are not yet priced in the curves and could easily lead to a price rally, so everyone wonders if OPEC+ may act on the forecast in next week’s meeting.