Oil prices mixed as coronavirus spike casts shadow over U.S. demand

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Reuters
KEY POINTS
  • Brent crude rose 18 cents, or 0.4%, to $42.98 a barrel by 0252 GMT after a 4.3% gain last week,
  • U.S. West Texas Intermediate crude was at $40.42, down 23 cents, or 0.6%, from its previous settlement on Thursday.
Oil pumps at sunset, industrial oil pumps equipment.
Oil pumps at sunset, industrial oil pumps equipment.
Pramote Polyamate

Oil prices offered up a mixed market snapshot on Monday, with Brent crude edging higher, supported by tighter supplies, while U.S. benchmark WTI futures dropped on concern that a spike in coronavirus cases could curb oil demand in the United States.

Brent crude rose 18 cents, or 0.4%, to $42.98 a barrel by 0252 GMT after a 4.3% gain last week, while U.S. West Texas Intermediate crude was at $40.42, down 23 cents, or 0.6%, from its previous settlement on Thursday. U.S. markets were closed on Friday to mark July 4 holiday celebrations.

Amid rising numbers of coronavirus cases in 39 U.S. states, a Reuters tally showed that in the first four days of July alone, 15 states reported record increases in new COVID-19 infections with parties over the holiday weekend possibly leading to another spike.

“There will be some kind of decline in demand if cases were to increase as people will stay at home,” said Howie Lee, an economist at Singapore’s OCBC Bank. “The pace of U.S. demand recovery will not be as steep as expected.”

For now, analysts at ING bank said data for several cities in affected states show no significant reduction in road traffic week-on-week.

“We will get a better idea of what impact tighter restrictions in several states have had on gasoline demand with the EIA (Energy Information Administration) report this week,” ING said in a note.

The implied volatility for Brent crude has dropped to the lowest since prices started collapsing in March as some in the market remain focused on tightening supplies as production by the Organization of the Petroleum Exporting Countries (OPEC) fell to its lowest in decades with Russian output dropped to near targeted cuts.

OPEC and allies including Russia, collectively known as OPEC+, have pledged to slash production by a record 9.7 million barrels per day (bpd) for a third month in July. After July, the cuts are due to taper to 7.7 million bpd until December.

U.S. production, the world’s largest, is also falling. The number of operating U.S. oil and natural gas rigs fell to an all-time low for a ninth week, although the reductions have slowed as higher oil prices prompt some producers to start drilling again.

Oil drops as new coronavirus outbreaks raise fuel demand concerns

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Reuters
KEY POINTS
  • Brent crude futures fell 89 cents, or 2.3%, to $37.84 a barrel by 0302 GMT, while U.S. West Texas Intermediate crude futures were down $1.18, or 3.3%, to $35.08 a barrel.
  • The oil benchmarks fell about 8% last week, their first weekly declines since April.
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 fell more than 2% on Monday, extending losses from last week, as new coronavirus infections hit China and the United States, raising the prospect that renewed outbreaks of the virus could weigh on the recovery of fuel demand.

Brent crude futures fell 89 cents, or 2.3%, to $37.84 a barrel by 0302 GMT, while U.S. West Texas Intermediate crude futures were down $1.18, or 3.3%, to $35.08 a barrel.

A cluster of infections in Beijing has increased concern of a resurgence of the disease. The coronavirus pandemic started at the end of last year in the Chinese city of Wuhan.

The oil benchmarks fell about 8% last week, their first weekly declines since April, as U.S. coronavirus cases started increasing. Over the weekend, more than 25,000 new U.S. cases were reported on Saturday alone as more states reported record new infections and hospitalizations.

“The recovery in oil demand is already set to be a lengthy process, and a fresh wave of cases will certainly raise worries that a recovery in demand may take even longer than initially thought,” ING Economics said in a note.

Industrial output in China, the world’s biggest crude oil importer, rose for a second consecutive month in May but the rise was smaller than expected, suggesting the world’s second-biggest economy is struggling to get back on track after containing the coronavirus.

The country’s refineries increased their throughput in May by 8.2% more than the same period a year ago to about 13.6 million barrels per day (bpd), government data showed.

An OPEC-led monitoring panel will meet on Thursday to discuss ongoing record production cuts and see whether countries have delivered their share of the reductions, but will not make any decision, according to five OPEC+ sources.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have been reducing supplies by 9.7 million bpd, about 10% of pre-pandemic demand, and agreed in early June to extend the cuts for a month until end-July.

Iraq, one of the laggards in complying with the curbs, agreed with its major oil companies to cut crude production further in June, Iraqi officials working at the fields told Reuters on Sunday.

The country’s oil minister later said it would export an average of 2.8 million bpd in June.

Oil prices fall as U.S. fuel demand remains weak

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Reuters
KEY POINTS
  • Brent crude slipped 25 cents, or 0.7%, to $35.04 a barrel by 0334 GMT.
  • U.S. West Texas Intermediate crude was at $33.18 a barrel, down 53 cents, or 1.6%.
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 lower on Friday after U.S. inventory data showed lackluster fuel demand in the world’s largest oil consumer while worsening U.S.-China tensions weighed on global financial markets.

Brent crude slipped 25 cents, or 0.7%, to $35.04 a barrel by 0334 GMT and U.S. West Texas Intermediate crude was at $33.18 a barrel, down 53 cents, or 1.6%. Still, both contracts are set for a fifth weekly gain, helped by production cuts and optimism about demand recovery in other countries.

“The rally needs a breather. It has been four weeks of gains and the market needs to buy time for downstream prices to catch up,” OCBC economist Howie Lee said.

“Beyond the short term, the bullish momentum still looks rather intact.”

Thursday’s data from the Energy Information Administration showed that U.S.crude oil and distillate inventories rose sharply last week. Fuel demand remained slack even as various states lifted travel restrictions they had imposed to curb the coronavirus pandemic, analysts said.

“Memorial Day weekend did not bring U.S. motorists out in droves like many market bulls were hoping,” RBC Capital Markets analyst Christopher Louney said in a note.

Looking ahead, traders will be focusing on the outcome of talks on output cuts between members of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, in the second week of June.

Saudi Arabia and some OPEC members are considering extending record production cuts of 9.7 million barrels per day beyond June, but have yet to win support from Russia.

Oil prices mixed as Brent retreats on profit-taking after rally

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Reuters
KEY POINTS
  • Brent crude fell 19 cents, or 0.6%, to $34.62 a barrel by 0351 GMT, after earlier touching its highest since April 9.
  • U.S. West Texas Intermediate crude was up 11 cents, or 0.4%, at $31.93 a barrel, giving up some of its earlier gains. It rose as high as $33.44 earlier in the session, hitting its highest since March 16.
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
Dado Galdieri | Bloomberg | Getty Images

Oil prices were mixed on Tuesday, with Brent pulling back from an early gain on profit-taking, while U.S. crude extended its rally amid signs that producers are cutting output as promised just as demand picks up on a resumption of economic activity.

Brent crude fell 19 cents, or 0.6%, to $34.62 a barrel by 0351 GMT, after earlier touching its highest since April 9.

U.S. West Texas Intermediate crude was up 11 cents, or 0.4%, at $31.93 a barrel, giving up some of its earlier gains. It rose as high as $33.44 earlier in the session, hitting its highest since March 16.

The June WTI contract expires on Tuesday, but there was little sign of a repeat of the historic plunge below zero seen a month ago on the eve of the May contract’s expiry amid signs that demand for crude and derived fuels is recovering from its nadir.

“I would not be surprised to see a short-term pull back as strength that we’ve seen in crude market the last week was quite extraordinary,” said Michael McCarthy, chief market strategist at CMC Markets.

The market was boosted earlier by signs that output cuts agreed by the Organization of the Petroleum Exporting Countries (OPEC) and others including Russia, a group known as OPEC+, are being implemented on the ground.

OPEC+ has cut its oil exports sharply in the first half of May, companies that track shipments said, suggesting a strong start in complying with a new production cut agreement.

“Investors’ sentiment has improved as OPEC+ are apparently slashing output as they promised for this month, with more voluntary cuts expected in June,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

“At the same time, there is growing optimism that the easing of global (coronavirus) lockdowns will help boost economic activity and fuel demand,” he said.

In further support for prices, U.S. production is also falling, with crude output from seven major shale formations expected to fall by a record 197,000 barrels per day in June to 7.822 million barrels per day. That would be the lowest since August 2018, according to the U.S. Energy Information Administration.

Still, demand will recover only slowly as some restrictions remain in place and there is a significant risk of repeat outbreaks and lockdowns, Eurasia Group said in a report issued on Monday.

“Given a global recession, cautious consumers, and a later and potentially worse peak of the coronavirus outbreak in emerging markets such as Latin America, Africa, and South Asia, consumption will remain below 2019 levels of 100 million bpd for some time,” it said.

Oil prices jump more than $1 ahead of WTI June contract expiry

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Reuters
KEY POINTS
  • Brent crude was up $1.19, or 3.7%, at $33.69 a barrel by 0240 GMT, after touching a high since April 13.
  • U.S. West Texas Intermediate crude was up $1.26, or 4.3%, at $30.69 a barrel, after rising to its highest since March 16.
Oil pumping jacks, also known as "nodding donkeys", operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Oil pumping jacks, also known as “nodding donkeys”, operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg via Getty Images

Oil prices climbed by more than $1 a barrel on Monday to their highest in more than a month, supported by ongoing output cuts and signs of gradual recovery in fuel demand as more countries ease curbs imposed to stop the coronavirus pandemic spreading.

Brent crude was up $1.19, or 3.7%, at $33.69 a barrel by 0240 GMT, after touching a high since April 13. U.S. West Texas Intermediate crude was up $1.26, or 4.3%, at $30.69 a barrel, after rising to its highest since March 16.

“Oil prices may show further upside momentum as the easing in mobility restrictions grows,” said Stephen Innes, chief global market strategist at AxiCorp in a note, referring to curbs that were designed to counter the coronavirus.

The June WTI contract expires on Tuesday, but there was little sign of WTI repeating the historic plunge below zero seen last month on the eve of the May contract’s expiry amid signs that demand for crude and derived fuels is recovering from its nadir.

Production is also falling as U.S. energy firms cut the number of oil and natural gas rigs operating to an all-time low for a second consecutive week.

That partly helped ease concerns about the WTI contract’s delivery point in Cushing, Oklahoma, running out of space.

“Given particularly that surprise draw that we saw on inventories last week in the U.S., it seems unlikely that those concerns about storage facilities will reassert themselves,” Michael McCarthy, chief market strategist at CMC Markets in Sydney said.

The Chicago Mercantile Exchange, which hosts trading in WTI futures, brokerages and the United States Oil Fund LP, the largest oil-focused exchange-traded product in the country, have all taken steps that reduce open positions ahead of the WTI contract’s expiry.

The positive mood was reinforced as U.S. Federal Reserve Chairman Jerome Powell issued an optimistic outlook for economic recovery later this year.

“Assuming there is not a second wave of the coronavirus, I think you will see the economy recover steadily through the second half of this year,” Powell said Sunday night in broadcast remarks.

Also supporting oil prices are production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, a grouping known as OPEC+.

The world’s top exporter Saudi Arabia announced last week that it would cut an additional 1 million barrels per day in June, while OPEC+ wants to maintain existing oil cuts beyond June when the group is next due to meet.

Kuwait and Saudi Arabia have agreed to halt oil production from the joint Al-Khafji field for one month, starting from June 1, Kuwait’s Al Rai newspaper reported on Saturday.