“Based on the technical outlook, oil prices could rally to $70-72/barrel, which are the peaks of September 2019 and January 2020. However, based on fundamental analysis, the case for further price gains is hard to make, although we are seeing optimism in financial markets in general.”

“We continue to expect a trading range in which the average Brent oil prices trade roughly between $50 and $60/barrel. Nevertheless, market speculation may temporarily push oil prices higher. Based on the supply/demand balance, we think that such much higher oil prices are not sustainable and that oil producers will then start to increase production.”

“With so much spare production capacity available, there will be no shortages in the coming years. There is also a risk that the expected recovery in demand for oil will be disappointing. The biggest recovery of demand will have to come from the aviation sector. Especially for aviation, we do not yet see a major recovery this year.”

“If investors start to feel that the upward movement is coming to an end, profit-taking on the extensive long positions could trigger a severe downward price correction. We, therefore, believe that the risks to the oil price are mainly on the downside.”

“We have also adjusted the oil price somewhat for 2022 and 2023. Again, we still see the $50-60 range. However, the price could rise slightly as a result of the expected economic recovery once the lockdowns ease.”

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Brent crude futures fell 71 cents, or 1.4%, to $49.37 a barrel at 0646 GMT, while U.S. West Texas Intermediate (WTI) crude futures slid 67 cents, or 1.4%, to $46.35 a barrel. Both contracts fell nearly 2% on Tuesday, already a second straight session of declines.

As well as doubts on the U.S. situation, the oil market remains jittery about the future recovery of demand as a new, highly infectious strain of the novel coronavirus has hit Britain, prompting much of the world to shut its borders to the country.

“This is the holiday period when people go out and that prompts fuel demand. But now, a majority of flights have been canceled to and from the UK, so this is going to impact oil demand (overall),” said Ravindra Rao, vice president, commodities at Kotak Securities.

“Sometime earlier, the expectation was that the virus threat was subsiding, and demand was slowly and slightly moving higher. But with this update of the new coronavirus strain, the market is purely operating on sentiment right now that it is going to create more restrictions.”

The American Petroleum Institute (API) reported on Tuesday that U.S. crude inventories have risen by 2.7 million barrels in the week to Dec. 18, compared with analysts’ expectations for a draw of 3.2 million barrels.

“Rubbing salt in the oil market wounds today, oil prices lurched lower after yet another inventory build that was very much bearish to consensus,” Axi chief market strategist Stephen Innes said in a note.

Oil also took a hit after Trump threatened not to sign an $892 billion coronavirus relief bill, saying he wants Congress to increase the amount in the stimulus checks which lawmakers approved on Monday.

Covid-19 cases continued to surge in the United States, with more than a million new cases in just six days, and Americans were warned again to avoid traveling for Christmas, further dampening fuel demand.

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A statement from the Russian President showed that Saudi Arabia and Russia are in agreement about the extension of the current cuts of 7.7 million bpd through 2021, a possibility that we had noted previously.

This possibility has now become very likely as Libya continues to ramp up production, which currently stands at 525,000 bpd. Another Important factor is the likelihood of lockdown measures being imposed in many of the bigger economies around the world including France, Spain, and the UK.

Bearish forces in the markets include the rising concerns about lockdown measures in Europe, rising production from Libya, and rising gasoline stocks in the United States. Last week, a permanent ceasefire agreement was signed between the fighting parties, which is expected to boost the stability of oil production and export operations. As a result, Libyan oil production is expected to rise to 1 million bpd within the next four weeks. Related: Venezuela’s Oil Major Sees Oil At $35 Through 2021

Canadian producers are also expected to increase production In early 2021 as authorities are looking to lift output restrictions in December. The oil province of Alberta had participated in market-driven cuts by 880,000 bpd, which accounts for 22% of its peak production, to support the OPEC+ 9.7 million bpd cut back in April. Current prices seem sufficient for Canadian production to resume production. Last week, Brent closed at $41.77 down by 2.70% w/w while WTI closed at $39.85 down by 2.52% w/w.

Although statements from the Russian President have partially supported prices by highlighting the possibility of extending current cuts, there still seems to be a lot of uncertainty among OPEC+ members about the details.  An agreement between Saudi Arabia and Russia on the cut extension will also need the support from other countries in the OPEC and OPEC+ group especially those who missed their production targets in 2020. This may prove to be difficult given the fact that many countries including Iraq and Nigeria have struggled to meet their targets in the previous months.

Meanwhile, US crude oil stocks continued to decline despite demand concerns. Last week, the EIA reported a withdrawal of 1 million barrels from commercial crude oil stocks to record a level of 488.1 million barrels. This is also associated with a decline in the SPR, which currently stands at 640.1 million barrels, down by 800,000 bpd barrels w/w.

Furthermore, a sharp decline was also recorded in middle distillates stocks, which currently stand at 160.7 million barrels, down by 3.8 million barrel w/w. Gasoline stocks, however, rose by 1.9 million barrels to stand at 227 million barrels which may be attributed to the rise in Covid-19 cases reducing demand for gasoline. Refinery processing also declined by 551,000 bpd to stand at 13.06 million bpd, a clear indication of a decline in transport fuel demand as we move towards the winter season. Additionally, U.S. crude oil production declined by 600,000 bpd to stand at 9.9 million bpd while U.S. crude oil net imports also declined by 1.07 million bpd. Apparent U.S. oil demand declined to 15.12 million bpd, down by 1.62 million bpd w/w.

This week, the markets will also be monitoring tropical storm Zeta in the Gulf of Mexico, which could potentially lead to another supply disruption as drillers pre-emptively shut down platforms. The storm is expected to hit the northern part of the gulf coast, yet it is not expected to be as strong as the Delta hurricane two weeks ago. So far, Zeta is the 27^th named storm in the 2020 Atlantic hurricane season. The number of storms and intense hurricanes in the Gulf of Mexico is set to rise as the temperature of the ocean continues to increase. This may continue to form an issue of supply disruption concern in the long term for an area with a production of around 1.7 million bpd.

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Brent crude prices had fallen by more than 50 percent over the last week, reaching its lowest level since June 1999. The dramatic drop was due to concerns that crude storage tanks are running out of space, RT reported.

On Wednesday, US President Donald Trump had warned that the US Navy would attack Iranian gunboats if they “harass our ships at sea,” reigniting fears of a conflict in the Persian Gulf.

West Texas Intermediate (WTI) had similarly plunged to a negative price for the first time in its history on Monday. The price has since recovered as well, growing to $15 per barrel.

The global oil markets have been experiencing a glut due to a steep drop in demand amid the  COVID-19 pandemic.

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