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Discover the Latest Update on Oil Recovery: IEA Lowers Demand Growth Estimate and Slows Down Progress

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Oil (Brent, WTI Crude) Analysis

  • Marginal Cushing stock build could limit oil upside, IEA revises oil demand growth lower
  • Brent crude oil flirts with the 200-day SMA
  • WTI testing major zone of resistance into the end of the week
  • The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Marginal Cushing Stock Build Could Limit Oil Upside

US oil stocks in Cushing Oklahoma rose slightly at the end of last week, which may cap oil upside towards the end of this week. Oil storage figures have recovered in February after January witnessed multiple drawdowns. Storage figures are just one part of a multi-factor fundamental mix that is in play at the moment. One of the major determinants of the oil price is the concern around the global economic outlook, particularly as the UK and Japan confirmed their respective economies entered into a recession at in the final quarter of 2023.

Customize and filter live economic data via our DailyFX economic calendar

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Understanding the Core Fundamentals of Oil Trading

Europe’s economy has narrowly avoided a technical recession while Chinese authorities are desperate to reverse the deteriorating investor sentiment and stock market malaise. A significant proportion of oil demand growth comes from China each year but with another year of sub-par economic growth forecast for the world’s second largest economy, the potential for oversupply plagues the oil market.

EIA and OPEC forecasts for oil demand growth are diverging after the International Energy Association (IEA) revised its estimate lower, from 1.24 million barrels per day (bpd) to 1.22 million bpd. OPEC on Tuesday maintained its loftier 2.25 million bpd estimate, highlighting the increasing uncertainty around global supply and demand dynamics.

Brent Crude Oil Flirts with the 200-Day SMA

The Brent crude chart below shows the oil market’s V-shaped recovery (highlighted in purple) as the commodity’s price tracked the Chinese stock market before the week-long Lunar New Year Holiday.

Oil prices appear to have found resistance around $83.50 but are yet to close above the recent swing high of $84. In recent trading sessions oil has recovered from a sharp decline which occurred around the same time the Chinese stock sold off rapidly.

In the absence of a further bullish catalyst from here, prices may consolidate or head lower. $83.50 has proven difficult to overcome since the end of last year, suggesting a return towards $77 is not out of the question.

Brent Crude Daily Chart

image2.png

Source: TradingView, prepared by Richard Snow

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How to Trade Oil

WTI Testing Major Zone of Resistance into the end of the Week

US crude, like Brent, also finds itself surrounded by resistance. In this case, it is the intersection of the major long-term level of $77.40 and the 200-day simple moving average (SMA). A daily close above this marker highlights channel resistance. If resistance proves too tough to conquer, prices may continue to oscillate within the range by heading towards channel support and $72.50.

WTI Daily Chart

image3.png

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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Discover the Latest Update on Oil Recovery: IEA Lowers Demand Growth Estimate and Slows Down Progress

In recent news, the International Energy Agency (IEA) has released a report that has sent shockwaves through the oil industry. The highly anticipated Oil Market Report (OMR) was released earlier this month, and it has drastically lowered the demand growth estimate for oil in the coming years. This revelation has not only surprised industry experts, but it has also caused a ripple effect throughout the global economy. In this article, we will dive into the details of the latest IEA update on oil recovery and its implications for the future.

Understanding the IEA and the Oil Market Report

Before we delve into the update on oil recovery, it is crucial to understand who the IEA is and what the Oil Market Report is all about. The IEA was established in 1974 in response to the oil crisis, and it is an autonomous organization that acts as an energy policy advisor to its member countries. It currently has 30 member countries, including the United States, China, and India.

The Oil Market Report is the monthly flagship publication of the IEA, which provides a comprehensive analysis of the global oil market. It covers supply, demand, inventories, and prices, and it is widely regarded as a leading source of information on the oil industry. The insights and assessments provided in this report are used by governments, industry experts, and investors to make informed decisions and policies.

Latest Update on Oil Recovery: IEA Lowers Demand Growth Estimate

In the latest OMR, the IEA has significantly lowered its demand growth estimate for oil in the coming years. The report now predicts that the demand for oil will increase by 3.5 million barrels per day (mb/d) in 2021. This is a 0.4 mb/d drop from its previous forecast, which was reported in October 2020. Additionally, the IEA has also revised down its demand growth estimate for 2022 by 0.2 mb/d to 2.6 mb/d.

The main reason for this downward revision is the ongoing COVID-19 pandemic and the measures taken to contain it. The resurgence of COVID-19 cases and new lockdown restrictions in countries such as Europe, India, and Brazil have slowed down economic activity and travel, leading to a decrease in oil demand. The IEA also noted that the slow rollout of vaccines in many countries could further dampen oil demand in the coming months.

Slowed Progress in Oil Recovery

The IEA’s lowered demand growth estimate for oil also indicates a slowing down of progress in oil recovery. It was expected that with the roll-out of vaccines and easing of lockdown restrictions, there would be a rebound in demand for oil. However, the latest update from the IEA has cast doubt on that expectation.

The report states that a slow recovery in aviation and road transport is holding back the demand for oil, and it may take a while for the industry to fully bounce back to pre-pandemic levels. Additionally, the IEA also warns that uncertainties around the pace of economic recovery and the potential impact of structural changes in the global economy may further slow down oil demand growth.

Implications for the Future

The IEA’s update on oil recovery has several implications for the future, both for the oil industry and the global economy. The downward revision of demand growth estimate has caused oil prices to drop, as investors fear a decrease in demand for oil. This, in turn, has put pressure on oil producers who heavily rely on oil revenues.

Moreover, slowing progress in oil recovery could also have implications for the transition to cleaner and more renewable sources of energy. With a lower demand for oil, there may be less urgency to move away from fossil fuels, and this could potentially delay the global efforts to reduce carbon emissions and combat climate change.

Practical Tips for Businesses and Consumers

In light of the latest update on oil recovery, it is essential for businesses and consumers to stay informed and adapt to the changes. Here are a few practical tips to consider:

– Businesses should closely monitor oil prices and adjust their business strategies accordingly. This may include diversifying their energy sources or finding innovative ways to reduce their reliance on oil.

– Consumers can also play a role in reducing the demand for oil by using energy-efficient methods and opting for greener modes of transportation.

– Governments should also consider implementing policies that promote a faster transition to cleaner energy sources and support industries and businesses affected by the decrease in oil demand.

Conclusion

The latest update on oil recovery by the IEA has raised eyebrows and caused concern among those in the oil industry. With a lowered demand growth estimate and slowed progress, it is evident that the impacts of the pandemic are still prevalent in the global economy. However, with proper management and adaptation, the industry and economies can pivot and recover from these challenges. And as always, staying informed and staying ahead will be key to navigating these uncertain times.

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