Although risk appetite was indecisive overnight, oil markets liked the positive news from China regarding its COVID-19 outbreak.

A senior epidemiology expert at China’s CDC said Beijing’s outbreak had been contained.

This reassuring news comes as infections in this cluster reached 150 cases, and authorities prevented some people from leaving the city.

In the US, however, the deteriorating situation in states like Texas, Florida, and Arizona remains a concern and has likely tempered enthusiasm.

Watch for US inventories

Staying consistent with my views this week, to push convincingly through the WTI $39-40 level, we may need to see a bullish double-hitter in the form of a flattening of US case counts and a draw in US inventories.

The later could happen next week due to the effect of tropical storm Cristobal, while the former could be a week or two away. With that said, if the virus spread in the US continues to rise slightly after that, it could negatively affect consumer spending behaviour and impact oil via falls in mobility data if people stay at home and do not use their car.

WTI Prices are inching near the US$39 level, which is a critical spot for Oil as a $39-40 zone is speculated to be a target that could encourage US shale producers to turn up the taps.

However, the US Energy Information Administration (EIA) inventory data was more supportive of prices than the earlier API. But again, it showed up the continuing lagged impact of April Saudi production increases landing on the Gulf Coast while the implied production figure is falling as the adjustment factor comes down.

Strict compliance among OPEC+ members

A feature of the recent OPEC+ agreement was a monthly review of compliance. Yesterday the Joint Ministerial Monitoring Committee (JMMC), and reportedly, Iraq and Kazakhstan presented plans for meeting quota and compensating for historical over-production. OPEC also announced that May compliance was at 87%.

While the news about Iraq and Kazakhstan is positive at the margin, the focus remains on the two most significant contributors to the OPEC+ agreement – Saudi Arabia and Russia.

Russia and Saudi Arabia continue to sing from the same song page. This was highlighted with Russia’s Energy Minister yesterday commenting on the speed with which Russia delivered on its commitment to the OPEC+ agreement.

Oil is supported today by signs of improving global demand and a US inventory build smaller than reported earlier this week by the API. Still, the markets remain tempered over the near term given growing concerns about an increase in Covid-19 infections stateside and the potential negative catalyst of rising US onshore production.

Asia oil price action yesterday was bewildering again as it has been all week, perhaps a result of localised jitters from the small outbreak in Beijing.

But this week has presented a panacea of opportunity for long term strategic oil buyers. They have steadily remained dip buyers believing wholeheartedly in OPEC delivering a healthy dose of medicine to the ailing oil markets, namely that the novel principle of compensation would be for the first time introduced in OPEC’s history.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp