Oil falls on second wave outbreak fears, rise in US inventories

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Reuters
KEY POINTS
  • Brent crude was down 58 cents, or 1.9%, at $29.40 by 0221 GMT, having risen 1.2% on Tuesday.
  • U.S. crude was down 39 cents, or 1.5%, at $25.39 a barrel, after jumping nearly 7% in the previous session.
An aerial view shows a cruise ship (L) and tanker vessel 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 shows a cruise ship (L) and tanker vessel 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 fell on Wednesday on worries about a possible second wave of coronavirus cases in countries starting to ease lockdowns, while industry data showed a rise in U.S. crude inventories.

The concerns overshadowed a further call by Saudi Arabia for larger production cuts to balance the market following a virus-induced demand slump, after OPEC’s biggest producer said earlier this week it planned to add to cut output again.

Brent crude was down 58 cents, or 1.9%, at $29.40 by 0221 GMT, having risen 1.2% on Tuesday. U.S. crude was down 39 cents, or 1.5%, at $25.39 a barrel, after jumping nearly 7% in the previous session.

“While the market feels more comfortable on the supply side of the equation, on the demand side, the focus will continue to revolve around the risks of easing lockdowns,” said Stephen Innes, chief markets strategist at AxiCorp.

U.S. infectious disease expert Anthony Fauci on Tuesday told Congress that easing coronavirus lockdowns may set off new outbreaks of the illness, which has killed 80,000 Americans and badly damaged the world’s biggest economy.

New outbreaks have been reported in South Korea and in China, where the health crisis started before spreading around the world, prompting governments to lock down billions of people, devastating economies and demand for oil.

On the supply side, Saudi Arabia’s cabinet has urged OPEC+ countries to reduce oil output further to restore balance in global crude markets, the country’s state news agency reported early on Wednesday.

On Monday, Saudia Arabia said it would add to planned cuts by reducing production by a further 1 million barrels per day (bpd) next month, bringing output down to 7.5 million bpd.

The Organization of the Petroleum Export Countries (OPEC) and other producers such as Russia — a group known as OPEC+ — agreed to cut output by 9.7 million barrels per day (bpd) in May and June, a record reduction, in response to a 30% fall in global fuel demand.

In the United States, inventories of crude oil rose by 7.6 million barrels last week to 526.2 million barrels, against analysts’ expectations for an increase of 4.1 million barrels.

Still, stocks of crude at the Cushing, Oklahoma, delivery hub fell by 2.3 million barrels, API said, which, if confirmed by official data, would be the first drawdown since February, according to ING Economics.

“Concerns over hitting storage capacity have eased, as we see demand gradually recovering, along with supply cuts hitting the market,” ING said in a note, pointing to the decline in Cushing stocks.

Official storage data from the U.S. Energy Information Administration is due later on Wednesday.

US crude rises 1.2 percent, settling at $73.80, but posts weekly loss on supply concerns

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  • Saudi Arabia raised oil supply sharply in June, while U.S. crude inventories rose unexpectedly last week.
  • The United States implemented tariffs on Chinese goods on Friday.
  • South Korea has stopped loading Iran oil as U.S. sanctions loom.

Oil fracking California

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Oil prices were mixed on Friday, with short-covering pushing up U.S. crude futures while Brent slipped on global trade tensions and increased Saudi production.

U.S. West Texas Intermediate crude futures ended Friday’s session up 86 cents, or 1.2 percent, to $73.80 a barrel. Global benchmark Brent was down 23 cents at $77.16 a barrel by 2:29 p.m.

For the week, WTI posted a loss of about a half a percent, while Brent was on track for a decline of about 3 percent.

“We have a little bit of a rally that’s materialized” for WTI, said Bob Yawger of director of energy futures at Mizuho in New York. The rally appears to be a “short covering situation — we were down almost 2 percent yesterday,” said Yawger.

U.S. crude futures slipped on Thursday after data showed an unexpected 1.3 million-barrel build in crude inventories.

Michael Rothman talks about oil market trends

Michael Rothman talks about oil market trends  

Brent, meanwhile, was “still having difficulty gaining independent bullish traction,” said Jim Ritterbusch, president of Ritterbusch and Associates in a note.

“Increased Saudi crude availability that is being enhanced by reduced OSPs (official selling prices) into Europe and other regions is providing a strong counter against curtailed Libyan export activities,” Ritterbusch wrote.

In addition to reducing the price of its August barrels, Saudi Arabia also told the Organization of the Petroleum Exporting Countries (OPEC) that it increased production by almost 500,000 barrels per day last month.

Output cuts by OPEC and allies since January 2017 have reduced a crude glut.

Involuntary drops in supply in Venezuela, Angola and Libya have made the cutbacks even bigger, although OPEC — led by Saudi Arabia — has since agreed to a modest increase in output.

“The more that Saudi Arabia adds to the market, the less of a supply cushion we have — that’s a bullish twist to a bearish development,” said Yawger at Mizuho.

An imminent shift in global oil trade flows was also affecting prices.

Trump accuses OPEC of driving gas prices higher

Trump accuses OPEC of driving gas prices higher  

U.S. tariffs on $34 billion in Chinese imports took effect as a deadline passed on Friday. Beijing has vowed to respond in kind.

China has indicated that it could place a tariff of 25 percent on U.S. oil. If that happens, “Chinese demand would then shift to other suppliers. Because the oil market is already in tight supply due to the numerous outages, this would drive international prices (Brent) further up,” Commerzbank said in a note.

Renewed U.S. sanctions on Iran against its oil exports look set to tighten supply further.

South Korea, a major buyer of Iranian oil, will not lift any Iranian crude and condensate in July for the first time since August 2012, three sources familiar with the matter said.

Meanwhile, the market continued to watch rising U.S. crude output. This week’s oil drilling rig count, an indicator of future production, rose by 5 rigs to a total of 863.