Crude rally pauses, prices slide on profit-taking as market awaits fresh drivers

Singapore — 0219 GMT: Crude oil futures were lower in mid-morning trade in Asia on Aug. 18 as investors took some profit and paused for fresh drivers after an overnight rally on improved fundamental outlook buoyed the global crude complex.

At 10:19 am Singapore time (0219 GMT), the ICE Brent October crude futures were down 17 cents/b (0.37%) from the Aug. 17 settle at $45.20/b, while NYMEX September light sweet crude contract was down by 19 cents/b (0.44%) at $42.70/b.

"This morning's [Aug. 18] activity looks like some profit-taking but mostly a pause to reassess the tug-of-war between the financials and the fundamentals," Vandana Hari, Founder and CEO of oil consultancy firm, Vanda Insights told Platts on Aug. 18.

"The dollar's continuing slide is the biggest support for crude's ascent. The growing unease that global oil demand recovery is plateauing is a counter-force, but may need to be validated by data to become a full-blown bearish pull," she added.

Oil prices moved higher overnight on strong support from ramped-up China crude purchases, a faster-than-expected US economic recovery and liquidity injections from China's central bank, or the People's Bank of China.

"Still, oil's rally could remain capped by recent surges in coronavirus cases around the world, which never stray far from the primary demand narrative," Stephen Innes, chief global markets strategist at AxiCorp, said in a note Aug. 18.

Global COVID-19 case counts continued to rise steadily amid a resurgence of infections worldwide with total cases at 21,809,170, while total deaths reached 772,479, latest data from John Hopkins University showed.

Separately, OPEC+ is expected to discuss about compensation cuts through September for members who overproduced and exceeded their output quotas from May to July during its Joint Ministerial Monitoring Committee meeting scheduled on Aug.19, S&P Global Platts reported earlier.

The coalition exceeded its quotas by 357,000 b/d from May to July according to Platts calculations and the overall cut compliance was pegged at 95% for July, compared to 107% in June and 87% in May.

While no further changes are expected for the OPEC+ production accord which eased into 7.7 million b/d from August, a focus on compliance and compensation cuts is ultimately supportive to the global crude complex.

"This week's JMMC could prove to be a catalyst as the meeting may address continued failure to comply with past quotas by Nigeria, Iraq, and others. Still, the incentive will be to emphasize overall compliance (around ~95%) and possibly to provide more detail on the framework for the principle of compensation over the next few months by OPEC+ members who have lagged so far," Innes added.

Meanwhile, US crude inventories likely fell by 3.8 million barrels last week, on the back of soaring exports and higher refinery demand, an S&P Global Platts analysis showed Aug. 17. This would mark the fourth consecutive week of decline, and the longest stretch of weekly draws since September 2019.

Market participants will look to fresh cues from the inventory reports by the American Petroleum Institute and the Energy Information Administration on Aug. 18 and 19 respectively.