Oil Slides Further With Virus Resurgence Weighing on Demand - BLOOMBERG

JUNE 29, 2020

BY  Elizabeth Low and Grant Smith

  •  Some U.S. states, including Texas, are reversing re-openings
  •  WTI crude futures fall 0.9% after declining by 3.2% last week

Oil fell further after last week’s slide on fears that the resurgence of the coronavirus around the world will derail a fragile recovery in fuel demand.

Futures fell toward $38 a barrel in New York after losing 3.2% last week. Deaths from the pandemic topped half a million globally, cases rose past 10 million and a United Nations agency reported the most infections for a single day. A surge in infections across the southern and western U.S. is causing states including Texas to reinstate measures to halt its spread.

After rebounding rapidly from its plunge below zero in April on supply cuts and recovering demand, crude has fallen in two of the last three weeks. Stockpiles in the U.S. are at record highs, worldwide consumption is still a long way off pre-virus levels and many refiners are struggling with low margins. Oil for recent delivery is trading at a discount to those further out in a market structure known as contango that indicates supplies are plentiful.

“The specter of Covid is haunting the market once again, raising concern that a slowdown in the reopening of the U.S. economy will affect the recovery in demand for transport fuels,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.

  • West Texas Intermediate for August delivery fell 0.9% to $38.16 a barrel as of 10:37 a.m. London time
  • Brent for the same month, which expires Tuesday, lost 1% to $40.63. The more active September contract was 0.9% lower
    • The global benchmark’s six-month timespread was $1.03 in contango compared with 62 cents on Friday

Prices would likely be falling further if it wasn’t for efforts by the OPEC+ alliance to restrict production. Iraq -- a habitual laggard in the group’s supply cuts -- is reassessing contracts to pump crude at fields where costs are high as it tries to contain expenses while curbing production, in a sign of the commitment to ease a global glut.

Separately, China’s state-owned refining giants are in discussions to form a joint purchasing group to buy crude, a move that has the potential to alter the balance of power between sellers and buyers in the oil market. That could increase the Asian giant’s bargaining power and avoiding bidding wars.

  • U.S. shale fracking crews, mired in a glut of idled equipment, are putting some of their pumps back to work.
  • The market for physical barrels of crude oil in Latin America continues to strengthen as falling production by OPEC and its allies benefit producers from Colombia to Argentina.
  • Chesapeake Energy Corp, filed for bankruptcy on Sunday, becoming one of the biggest victims of a spectacular collapse in energy demand due to the virus. Exxon Mobil Corp. is preparing to cut jobs to create a slimmed-down, more efficient organizational structure.

— With assistance by James Thornhill

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