By Elizabeth Low, James Thornhill and Grant Smith
The coronavirus continues to run rampant through the world’s largest economy, with cases surging in California, Texas and Florida, the three most populous states. Many areas have now paused or reversed re-opening measures, weighing on energy demand.
Oil has traded in a narrow range around $40 this week as supply cuts from OPEC+ and elsewhere are balanced by demand that’s still well below pre-virus levels and at risk of regressing. Indian consumption of petroleum products is at 88% of year-ago levels, the country’s oil ministry said. Demand growth for such products will never return to where it was before the pandemic as fewer people fly and use their cars, according to Citigroup Inc.
“The market has calmed down and for now has adopted a wait-and-see approach,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “The virus poses a risk to demand for as long as it’s not under control, but that’s being offset by strong compliance from OPEC+. So for now crude oil remains in good health within the established range.”
West Texas Intermediate for August delivery rose 0.6% to $40.05 a barrel on the New York Mercantile Exchange as of 10:47 a.m. in London.
Brent for September settlement advanced 0.7% to $42.31 on the ICE Futures Europe exchange, after rising 1.8% Wednesday. The global benchmark crude’s six-month timespread was 78 cents in contango — where prompt prices are cheaper than later-dated contracts — indicating lingering concern about oversupply.
The 7.2 million-barrel contraction in U.S. crude stockpiles compared with an estimated decline of 500,000 barrels in a Bloomberg survey. Data on OPEC output also buoyed prices, as a separate survey showed a 1.93 million-barrel-a-day drop to less than 23 million a day in June.
Yet the outlook for consumption remains uncertain. While the coronavirus continues to curb oil use, a potential new flare-up in tensions between Beijing and Washington poses another possible risk to demand.
The U.S. House of Representatives on Wednesday passed a bill imposing sanctions on banks that do business with Chinese officials involved in cracking down on pro-democracy protesters in Hong Kong.