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19.01.2021 03:05 PM
Oil falls on concerns about supply and demand

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Oil prices fell on Monday, January 18, amid concerns about the coronavirus's impact on the supply and demand balance in the market.

Brent crude oil lost 0.94% to trade at $51.18 per barrel. Futures on WTI decrease by 0.82% to hit $51.99 per barrel.

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The number of coronavirus infections in the world continues advancing. As a result, the prospects for a recovery in oil demand are grim. Many countries are imposing tough restrictions to stop the virus spread. For example, in the United States, more than 140 thousand new cases of COVID-19 were registered. About 400 thousand people died.

In addition, there is an increase in drilling activity in the US, which worries investors. This could lead to an increased supply in the market as companies are making profit from high oil prices.

Thus, Baker Hughes increased the number of drilling rigs by 13 to 373 units in just a week. Their number has been rising for the second month in a row.

This week, all traders' attention will be focused on the inauguration of the US President-elect Joe Biden. They will also take a close look at the measures he will take to support the American economy.

Nevertheless, the onset of cold weather contributes to higher demand for oil. For example, in Japan, heating fuel is used to generate electricity by means of LSFO (low sulfur heating oil) and crude oil.

Goldman Sachs estimates that an unexpected surge in demand due to weather conditions in the coming weeks will increase global consumption by at least 1 million barrels per day. Moreover, if gas prices in the Netherlands move above $10 per million British thermal units, the potential demand for oil may rise even more.

According to Vortexa, shipments of heating oil to Japanese ports in January rose by 38% over the same period last year. In Korea, where coal-fired power plants are gradually switching to cleaner fuels, LSFO consumption will increase by 100 to 130 thousand tons in the first quarter.

Kate Smirnova,
Analytical expert of InstaForex
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