With the US driving season end in sight, this suggests there will be a significant drop off on gasoline demand amid one of the most morose pandemics impelled dormancy in US travel ever.

While peering into the September viewfinders, traders find themselves at the end of the runway on bullish catalysts and are now giving way to what cannot go up eventually goes down trade.

Even the larger than expected (Hurricane Laura adjusted) inventory draws could not mask the seasonality factors creeping into the storyline.

The refinery maintenance period is scheduled to kick off so the industry can toggle the mix from summer to winter blends, which is bearishly merging with September seasonal downtick in gasoline demand.

These factors suggest a seasonal drop off in refinery runs and higher oil inventory levels as we advance through September. And with continued pressure on global refining margins, there is still no bottom-line incentive for refineries to even ramp up down the road.

There is always that looming angst around pandemic risk. Indeed, an idiosyncratic seasonality factor comes into focus this year as colder autumn-winter months force social activities indoors where the risks run higher for the flu’s spread.

And keeping the work and schooling “stay at home” mandates in place possibly until a vaccine comes available in the spring.

It’s funny how we always end up back to the vaccine pie in the sky argument. But in fact, it might be the only tangible factor that will drive oil prices significantly higher, given only then will people will feel safe to break ranks with their stay at home regime.

My consistent view was those near-term headwinds from the uncertain macro environment, seasonal gasoline demand drops off, and winter fear of the virus could lead to a correction in the coming weeks. Still, like everything in this pandemic trading environment, time compression is a huge factor. What I expected to happen over the next 14 days occurred in 14 hours.

Also weighing on top side momentum were comments that Russia will propose to OPEC+ to react to the recovery in global oil demand, which has now reached 90 per cent of the levels seen before the pandemic, Russia’s Energy Minister Alexander Novak said on Wednesday.

While OPEC+ is extremely sensitive to downside moves, thereby curbing production, this latest Russian demand could influence OPEC to add more barrels quicker to the market on a more price-sensitive basis.

While the market remains heavily intervened to curb downside momentum, the thought of more supply coming to call on a price-sensitive basis suggests intervention will also curb the market top-side ambitions.

Finally, and not too unexpected, oil is getting pressured lower as the mega commodity reflation trade shows some wear at the edges as the US dollar recovers and commodities shift lower, including oil.


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