Global oil inventories may see an increase in November and December due to the new wave of the coronavirus that is striking Europe, experts from Mercuria Energy Trading conclude.
On top of weaker demand, the Joe Biden win of the presidency is also a factor of preoccupation for oil investors and market watchers. They believe regulations for oil investment will be tougher.
For production, they fear that an ease on the restrictions put on Iran’s and Venezuela’s oil may flood the market with overproduction, cracking the fragile market balance.
Nevertheless, for Marco Dunand, CEO at Mercuria, those impacts may be not as immediate as many would think.
During the Reuters Commodity Trading Summit, he said that he did not see any major rule changes for the oil industry under a Biden presidency, but investing in fossil fuels may be a little tougher.
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Oil inventories go up, production may go up, but not prices
“You can expect stronger limits in the U.S. for emissions, permitting in the shale industry, pollution. All the standards that are going to be required to develop new fossil fuel projects will be a lot stricter,” he said, quoted by Reuters.
“My guess is that there won’t be a rule change in shale production, but it will become harder over time to invest in fossil fuels. I don’t think it will have a material impact over the next year or two.”, he concluded.
As for now, with demand weakening after new coronavirus cases all over Europe, oil inventories may rise, as inventory draws keep plunging.
The Energy Information Administration (EIA) estimates that global oil inventories build at a rate of 7.1 million barrels a day in the second quarter of 2020; while inventory draws dropped to 3.1 million barrels.
With the new Covid-19 wave, EIA estimates that draws on the final quarter of the year may drop to 3 million barrels or lower.
About price behavior and the production that OPEC and its allies could add to the market, Dunand said: “They will have to come to a consensus. Maybe it is going to be below $50 or maybe somewhere around $50. That’s going to be the first place where they may find a consensus.”