Oil prices bounce back from 3-week lows, but economic headwinds loom

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KEY POINTS
  • Brent crude was up by 40 cents, or 0.9%, at $43.34 a barrel by 0204 GMT. On Thursday, Brent closed down 1.9% but had recovered much of the ground lost from the lowest level since July 10.
  • U.S. crude gained 35 cents, or 0.9%, to $40.27 after dropping 3.3% the previous session, again recovering from lows not seen since July 10.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images

Oil prices rose on Friday, recovering further ground after touching three-week lows in the previous session, hit by a record decline in U.S. growth as the coronavirus ravaged the world’s biggest economy and oil consumer.

Brent crude was up by 40 cents, or 0.9%, at $43.34 a barrel by 0204 GMT. On Thursday, Brent closed down 1.9% but had recovered much of the ground lost from the lowest level since July 10.

U.S. crude gained 35 cents, or 0.9%, to $40.27 after dropping 3.3% the previous session, again recovering from lows not seen since July 10.

That leaves Brent on track for a fourth month of gains, while U.S. crude is heading for a third consecutive month of increases, as the contracts have recovered from the depths reached in April when much of the world was in lockdown.

But as a second wave of infections rages around the world, the threat to oil demand is becoming apparent.

“Despite the resilient and range-bound nature of oil pricing over recent weeks, plateauing global demand and increasing OPEC+ output raises the question of whether the market can absorb additional barrels,” RBC Capital Markets said in a note.

OPEC+, a grouping of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively plan to increase production from Saturday, adding about 1.5 million barrels per day to global supply.

Globally, the economic outlook has dimmed again, with increasing coronavirus infections raising the risk of renewed lockdowns and threatening any rebound, according to Reuters polls of over 500 economists globally.

That was underlined by Thursday’s news that U.S. gross domestic product collapsed at a 32.9% annualised rate, the deepest decline in output since records began in 1947.

Oil prices slip as Covid-19 case surge dents fuel demand hopes

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REUTERS
KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude futures fell 6 cents, or 0.2%, to $41.21 a barrel at 0130 GMT.
  • Brent crude futures lost 7 cents, also 0.2%, to $43.68 a barrel.
An aerial view shows pumpjacks in the South Belridge Oil Field on April 24, 2020 near McKittrick, California.
An aerial view shows pumpjacks in the South Belridge Oil Field on April 24, 2020 near McKittrick, California.
David McNew | Getty Images

Oil prices dipped on Thursday as a surge of coronavirus infections around the globe raised fears a rebound in fuel demand would stutter just as major oil producers are set to raise output in August.

U.S. West Texas Intermediate (WTI) crude futures fell 6 cents, or 0.2%, to $41.21 a barrel at 0130 GMT, while Brent crude futures lost 7 cents, also 0.2%, to $43.68 a barrel.

Both benchmark contracts hovered around unchanged levels after having jumped on Wednesday after the U.S. Energy Information Administration reported a sharp, unexpected 10.6 million barrel drop in crude stockpiles last week.

However, at the same time U.S. gasoline and distillate stocks, which include diesel and heating oil, both rose against expectations for inventories to fall – highlighting the patchy nature of the recovery in fuel demand.

“It wasn’t all good news, with signs that demand is still struggling to grow,” ANZ analysts said in a note.

Analysts said the mixed price moves on Thursday were due to demand concerns with COVID-19 infections increasing and raising the prospects for lockdowns to be reimposed.

“As long as we’re recording new daily cases, the risk for oil demand is just too strong,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia.

Deaths from COVID-19 topped 150,000 in the United States on Wednesday, while Brazil, with the world’s second-worst outbreak, set new daily records of confirmed cases and deaths. New infections in Australia hit a record on Thursday.

“If we see lockdowns or partial lockdowns, transportation gets hit disproportionately. Transportation accounts for two-thirds of oil demand,” Dhar said.

The potential hit to the demand rebound comes just as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are set to step up output in August, adding about 1.5 million barrels per day to global supply.

Oil rises after surprise drop in U.S. inventories offsets demand concerns

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REUTERS
KEY POINTS
  • Brent crude futures were up by 14 cents, or 0.3%, at $43.36 a barrel by 0326 GMT, after dropping 0.4% on Tuesday.
  • U.S. West Texas Intermediate crude futures gained 2 cents, or 0.1%, to $41.06 a barrel, having dropped 1.4% in the previous session.
South Belridge Oil Field is the fourth-largest oil field in California and one of the most productive in the U.S.
South Belridge Oil Field is the fourth-largest oil field in California and one of the most productive in the U.S.
David McNew | Getty Images

Oil prices rose on Wednesday after an industry report showed that crude inventories in the United States fell against expectations, giving the market a boost amid record increases of coronavirus infections in the U.S. and elsewhere.

Brent crude futures were up by 14 cents, or 0.3%, at $43.36 a barrel by 0326 GMT, after dropping 0.4% on Tuesday.

U.S. West Texas Intermediate crude futures gained 2 cents, or 0.1%, to $41.06 a barrel, having dropped 1.4% in the previous session.

Inventories of crude oil in the U.S. dropped by 6.8 million barrels last week to 531 million barrels, data from industry group the American Petroleum Institute showed on Tuesday. [API/S]

Analysts’ expectations were for an increase of 357,000 barrels. U.S. government data is due Wednesday.

“This should temporarily alleviate some concerns about ongoing demand distress,” Stephen Innes, chief global markets strategist at AxiCorp said in a note.

The raging COVID-19 pandemic is keeping alive concerns about falling fuel demand causing an oversupplied market as record numbers of infections are reported globally, including the U.S., the world’s biggest consumer of oil.

Four U.S. states reported one-day records for coronavirus deaths on Tuesday and cases in Texas passed the 400,000 mark.

Attempts to provide relief amid the outbreak were in disarray as Republicans in the U.S. disagreed over their own plan for providing $1 trillion in new coronavirus aid on Tuesday.

In Hong Kong, the government on Wednesday warned the city is on the edge of a large-scale coronavirus outbreak and urged people to stay indoors as much as possible.

Oil prices steady as demand concerns offset U.S. stimulus hopes

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REUTERS
KEY POINTS
  • Brent crude futures climbed 2 cents, or 0.1%, to $43.43 a barrel at 0423 GMT while U.S. West Texas Intermediate (WTI) crude futures fell 7 cents, or 0.2%, to $41.53 a barrel.
  • Both benchmarks rose as much as 0.5% earlier in the session.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.
Simon Dawson | Bloomberg | Getty Images

Oil prices were steady on Tuesday, erasing gains earlier in the session, as rising coronavirus cases dampened the outlook for demand and countered optimism over more U.S. stimulus.

Efforts to stimulate the U.S. economy’s recovery from the coronavirus crisis had raised hopes for stronger oil demand.

Brent crude futures climbed 2 cents, or 0.1%, to $43.43 a barrel at 0423 GMT while U.S. West Texas Intermediate (WTI) crude futures fell 7 cents, or 0.2%, to $41.53 a barrel. Both benchmarks rose as much as 0.5% earlier in the session.

“A weaker U.S. dollar is supporting both base and precious metals, but oil traders appear focused on the economic signal that the lower dollar is flashing – i.e. demand destruction,” said Michael McCarthy, chief market strategist at CMC Markets.

A weakening of the dollar typically helps improve demand as that makes crude cheaper for global buyers.

Gold prices surged to record highs this week, powered by investors seeking cover from COVID-19′s global economic toll, as reflected in faltering stocks and U.S.-China trade tensions.

The U.S. dollar dropped to its lowest in nearly two years against a basket of six other major currencies on the back of a surge in U.S. coronavirus cases. Florida and California have now both overtaken the previous epicentre, New York.

But losses could be capped by fresh government aid packages that could help fuel demand.

“Oil prices will continue to draw support from the Fed’s dovish policy,” AxiCorp market strategist Stephen Innes said in a note.

U.S. Senate Republicans on Monday proposed a $1 trillion coronavirus aid package worked out with the White House to revitalise the economy with expanded unemployment benefits for millions due to expire this week, although Democrats urged more support.

Further aiding the stimulus, the U.S. Federal Reserve’s policy-setting panel meets on Tuesday and Wednesday, where it is expected to reiterate it will keep interest rates near zero for years to come.

“For oil prices to break out higher, there must be a significant flattening of the U.S. Sunbelt COVID-19 case count curve at a minimum,” Innes said.

Traders will be watching out for U.S. inventory data due from the American Petroleum Institute industry group later on Tuesday and the government on Wednesday. Refined products stockpiles are expected to have declined last week, while crude oil stockpiles are expected to have held steady, five analysts polled by Reuters estimated.

On the down side for fuel demand, Europe’s largest low-cost airline, Ryanair, on Monday cut its annual passenger target by a quarter after bookings were hit in recent days, and warned a second wave of COVID-19 infections could lower that further.

Oil slips as rising coronavirus cases, U.S.-China tensions weigh on markets

CNBC

REUTERS
KEY POINTS
  • Brent crude dipped 10 cents, or 0.2%, to $43.24 a barrel by 0041 GMT.
  • U.S. West Texas Intermediate (WTI) crude was at $41.24 a barrel, down 5 cents.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil prices edged down on Monday as rising coronavirus cases and tensions between the United States and China pushed investors toward safe-haven assets.

Brent crude dipped 10 cents, or 0.2%, to $43.24 a barrel by 0041 GMT while U.S. West Texas Intermediate (WTI) crude was at $41.24 a barrel, down 5 cents.

The fall in oil mirrored moves in broader financial markets in Asia amid concerns about escalating tensions between the world’s two biggest economies following the closure of embassies in Houston and Chengdu. Global coronavirus cases, meanwhile, exceeded 16 million.

Still, Brent is on track for a fourth straight monthly gain in July while WTI is set to rise for a third month as unprecedented supply cuts from the Organization of the Petroleum Countries and its allies including Russia, as well as in the United States, propped up prices.

Oil demand has also improved from the deep trough seen in second quarter, supporting prices, although the recovery path is uneven as resumption of lockdowns in the United States and other parts of the world is capping consumption.

Investors are also watching for any impact from storm Hanna which battered the Texas coast over the weekend, threatening heavy rains in Texas and Mexico. Oil and gas producers and refiners said on Friday that they did not expect the storm to affect operations.

The rebound in oil prices has also encouraged the world’s top producers to increase output and exports again.

The U.S. oil rig count rose last week for the first week since March after producers added one rig, Baker Hughes data showed, a sign that U.S. oil production decline may have bottomed out.

Russian oil exports from Western ports are set to rise 36% in August from July, according to the preliminary loading plan and Reuters’ calculations.

The world’s top exporter Saudi Arabia again topped the chart of crude suppliers to China in June, supplying 2.16 million barrels per day, or nearly 17% of China’s record imports that month.