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Oil market showing trend in right direction but slow movement

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Following the release of official weekly US Energy Information Administration data on stocks, demand and supply of US crude oil and refined products, trends are indicating movement in a positive direction - but at a slow pace, analysts suggest.

 Adrian Lara, Senior Oil & Gas Analyst at GlobalData, said that gasoline demand had shown a favourable trend since early April, but that it has not sustained above the 9 million barrels per day (mmbd) level.

"There is at least 400mbd of volume not supplied that still accounts as demand destroyed, when compared to demand in August last year, and around 50 percent less demand for jet fuel, which is not looking to recover any time soon," Lara said. "In a way the upward trend has become clearer in the last four months but it appears to have plateaued."

Crude oil faced a disruption with the arrival of Hurricane Laura on the Gulf of Mexico coastline, which cut output by 1.1  mmbd as offshore platforms and refineries closed up to weather the storm.

"At the strongest period of the hurricane, almost half of the offshore platforms were evacuated leading to approximately 84 percent loss in offshore crude production.," Lara described. "In relation to this drop in production, crude oil stocks experienced a relatively high withdraw of 9.3 million barrels, pointing to a compensation from the reduced supply due to the hurricane. Still, it is expected for offshore crude production to be brought back on line and inventory withdrawals, when occurring, are expected to average levels seen during previous weeks of around 4.5 million barrels."

While WTI has remained above US$40 per barrel since early July, with some bumps upwards of $43/bbl in August, it hasn't been able to break the $45 mark, Lara noted. Domestic production cuts have helped prices rebound from the $20/bbl lows from April and May, he added.

"Weekly signals of weaker or stronger demand for transportation fuels, in particular gasoline, are now a main driver affecting WTI price. Indeed last week's lower supplied volumes of gasoline and lower crude demand from refiners negatively impacted WTI," Lara said. "A level below $45 is still considered challenging for many US producers, especially for companies operating in shale plays across the country."

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