Oil Dips Lower After Facing Resistance at Key Technical Level

(Bloomberg) -- Crude closed lower after failing to hold above a key technical level as a still-raging pandemic threatens to depress demand into the fall.

Futures in New York declined 0.8% on Tuesday as oil met resistance at its 200-day moving average. Meanwhile, coronavirus infections breached 20 million cases globally, and in the U.S., which accounts for a quarter of all cases, Florida reported another day of record deaths. The rising case count indicates a weaker market in the fall after the summer driving season comes to an end.

“We still continue to have an overhang and a significant amount of spare capacity within OPEC,” said Bart Melek, head of global commodity strategy at TD Securities. “It’s going to be tough to get out of that trading range.”

The industry-funded American Petroleum Institute reported that U.S. crude supplies declined by 4.01 million barrels last week, according to people familiar.

The Organization of Petroleum Exporting Countries and its allies will ease their historic output curbs this month in a test for a market already devastated by the pandemic. Still, Rystad’s head of shale research said unless prices moved back toward $50 a barrel in the next few weeks, a rig activity rebound is unlikely before the first half of 2021.

“I’d expect some rigs to go back to work now that oil has gotten above $40, but is it enough to unbalance the oil market?” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “I doubt it. The comeback in volumes is not likely to be what it was last time.”

In physical markets, crude in Texas’s Permian basin this week traded near the strongest level in over two weeks. West Texas Sour rose as much as 10 cents to 25 cents over Nymex WTI futures, its highest premium in almost a month, before easing.

The API report also showed declines in distillate and gasoline supplies, but a 1.07-million-barrel build in inventories at the Cushing, Oklahoma, storage hub. If confirmed by U.S. government data on Wednesday, it will be the sixth straight weekly increase in stockpiles at Cushing.

©2020 Bloomberg L.P.