Oil Edges Lower in Midst of Virus-Induced Demand Slump
Oil traded near $43 a barrel in New York with focus returning to the fragile demand recovery after the hurricane threat eased.
(Bloomberg) -- Oil dipped as a surge in coronavirus infections hitting the world’s major economies weighed on the prospect for a demand recovery even as China’s economic activity improves.
While a gauge of China’s services industry is at the strongest level since early 2018, according to the National Bureau of Statistics, countries around the world are struggling to contain the virus. Cases topped 6 million in the U.S. and the U.K. added the most infections since early June, threatening a lackluster demand rebound as less people take to the roads and travel remains depressed.
To the extent that China’s “manufacturing-intensive economy is making a comeback, which it clearly is in these numbers, that’s going to mean more crude oil demand, more refined product demand,” said John Kilduff, a partner at Again Capital LLC. Yet, “pandemic fears, the lack of progress in Washington on a deal,” continues to weigh on prices.
Despite uncertainty over a return-to-normal for oil demand, U.S. benchmark crude futures rose more than 5% in August for a fourth straight monthly gain as prices recover from their plunge below zero in April. Goldman Sachs Group Inc. raised its year-end forecast for West Texas Intermediate crude futures to $45.50 a barrel from $40 and Brent to $48 from $43, citing progress on a vaccine and signs of an easing outbreak in the U.S.
“The market managed to remain in deficit despite a global second Covid-19 wave, with U.S. cases now declining without U.S. oil demand having to fall,” Goldman analysts including Damien Courvalin and Huan Wei said in a note. “Fundamentals appear skewed to a faster re-balancing” given the rising likelihood of vaccines being available by the U.S. spring and that major oil-producing companies are keeping capital expenditure low.
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U.S. Gulf Coast crude production is also coming back online after companies curtailed operations ahead of Hurricane Laura. Disruption due to storms amounted to over half of total Gulf production, down from late last week when it was over 80%, according to data from the U.S. Bureau of Safety and Environmental Enforcement.
Meanwhile, oil traders expect Saudi Aramco, the world’s biggest exporter, to react to weak refining margins by slashing Asian pricing of its key Arab Light grade for October shipments by $1 a barrel, according to a Bloomberg survey. That would push pricing below the benchmark used by the Saudis for the first time since June.
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