Asia Oil: All Eyes Will Be Trained On This Weekend's U.S. Mobility Data

Oil

But worrisome for oil prices are the densely populated southern US states that have been ravaged by the virus and are among the US's most weighty consumers of gasoline. With the latest state government health advisory imploring Sun Belt citizens to restrict movement, coupled with the re-imposing of localized lockdowns, there is a detectible level of uncertainty in the oil market heading into what is traditionally one of the busiest driving weekend of the year, the July 4th celebration weekend.

Gasoline demand has done the bulk of the heavy lifting through the oil market's nascent and continued recovery. All eyes will be trained on this weekend's mobility data for the first read - usually the peak of the summer driving season.

The improving economic data around US unemployment and the diffusion indexes continue to beat market expectations. However, at this early stage of the recovery, there is as much good as bad under the hood.

While the NFP data shattered all market expectations, the cross-asset market didn't correctly fire as high as expected on what usually would have been interpreted as a market showstopper. On the face of it, the NFP report should have sent a plethora of assets including oil much higher, but the jobs data predates the latest spikes in virus outbreaks across the country. So, the NFP headline report possibly captured the 'sweet spot' of maximum optimism around mid-June. Hence, the oil market impact overall was relatively muted.

Still, the sizeable US crude inventory draw reported on Wednesday by the EIA, though smaller than the decline estimated on Tuesday by the API, was enough to confirm that the combined effect of falling Saudi Arabia imports and improving demand has a positive impact.

While concerns remain about the increasing coronavirus infection count recently, both supply and demand seem to be moving in the right direction. Saudi Arabia reportedly continues to take a muscular approach in warning OPEC+ participants to maintain compliance with the production cut agreement and compensate for the previous under-compliance in the case of a few laggards. OPEC compliance is crucially essential for maintaining market balance and ultimately drawing down global inventories.

However, it remains to be seen whether the market will be able to look through any evidence of rising US onshore production (which should be visible this month). Still, the probability of the extreme downside scenarios that weighed on oil as recently as 4-6 weeks ago has dramatically diminished.