(Bloomberg) Oil pared an earlier decline as equities rose, shrugging off some concerns about a second wave of coronavirus cases in China.Futures in New York were 0.7% lower, after falling as much as 3.1%. Stock markets in Europe gained as traders looked at stimulus measures to help boost the economy, including in the U.S. However, any recovery is fraught with risk as a new phase of virus infections emerges in Beijing, forcing the government to close all schools and cancel more than 1,200 flights.“Market players seem to remain unconcerned about a second Covid-19 wave impacting oil demand and probably think that central bank and fiscal stimulus will support economic activity,” said Giovanni Staunovo, commodity analyst at UBS Group AG.
Though crude’s path back to normal demand levels is patchy, there are signs that the physical market continues to recover. In Europe, key swaps that help price millions of barrels of the world’s oil are trading in a structure that indicates tight supply, while derivatives that contribute to valuing Russian crude are also firming.
Prices are being aided by massive supply cuts by the Organization of Petroleum Exporting Countries and its allies. The group’s compliance with its cutback target was 87% in May, a delegate said. Usual laggards, such as Iraq and Nigeria, are also starting to toe the line.
West Texas Intermediate for July fell 21 cents to $38.17 a barrel as of 10:13 a.m. in London
Brent for August lost 0.3% to $40.83 a barrel on the ICE Futures Europe exchange
The contract was 54 cents cheaper than November futures, compared with near $5 in late April. The narrowing contango shows that supplies are tightening.
Still, there one metric that’s complicating things for the big producing countries. The American Petroleum Institute reported U.S. crude stockpiles rose by 3.86 million barrels last week, according to people familiar with the data. Inventories grew to a record in the previous week, official figures showed, despite output having fallen by at least 2 million barrels a day since March. Official data for last week is due later on Wednesday.
“Day-to-day oil trading has become a tussle between bearish oil data, particularly under-powered demand recoveries and record-high inventories, and top-down macro-led expectations of better things to come,” said Standard Chartered analysts including Emily Ashford.
Other oil-market news
Venezuela’s oil exports have collapsed since the U.S. placed sanctions on its state producer, but some crude from the OPEC member is still making its way to buyers in Asia.
After flooding the U.S. with crude earlier this year, Saudi Arabia has all but cut off the taps to the American oil market.
The physical supply of oil in northwest Europe is looking increasingly constrained as barrels from the North Sea get shipped out to Asia and Russia cuts the flow of cargoes dramatically.
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