Crude Slips in the U.S. With Bleak Summer Demand Outlook

(Bloomberg) -- U.S. crude futures edged lower with investors concerned that lackluster demand through the summer months will weigh on the market’s recovery.

As coronavirus infections rise across much of the U.S., major fuel-consuming states including California, Florida, Arizona and Texas have reimposed stricter measures to curb the spread. Gasoline demand could fall by 17% in July from the same time last year if lockdowns are reintroduced, according to JBC Energy GmbH.

Drivers across the U.S. normally hit the road for the Independence Day holiday -- usually a high point for gasoline demand during the summer -- but the virus kept more people indoors. Domestic gasoline consumption during the long weekend was more than 20% below last year’s levels, according to GasBuddy.

“The coronavirus impacts in the country are causing folks to hunker back down again,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. “This could be a real problem for the market going forward.”

While the U.S. benchmark crude has doubled in value since April to just above the $40-a-barrel mark, futures are having trouble rallying beyond that level amid uncertainty over re-openings across the country.

In Florida, Miami-Dade Mayor Carlos Gimenez is planning an emergency order to close restaurants and gyms. Florida reported 206,447 Covid-19 cases on Monday, up 3.2% from a day earlier. In Texas, a county official is calling for a stay-home order once again in the Houston area.

In global markets, Brent crude showed strength with demand faring better. Saudi Aramco lifted pricing for all of its crudes to Asia by $1 a barrel. Aramco also raised pricing to the U.S., where it’s reining in shipments, for a fourth month.

“Brent is strengthening because of the Saudi price increase this morning and because European economies are re-opening and handling the Covid problem better than in the U.S.,” said Bob Yawger, director of the futures division at Mizuho Securities USA.

Traffic congestion data -- a rough measure of automobile activity -- remains mixed, with some cities growing steadily busier and others slipping back. Of 13 world cities examined, traffic is heaviest in Shanghai and lightest in Mumbai. Congestion in Los Angeles on July 2, just before the Independence Day holiday, was 82% lower than a year ago.

But in a warning sign for oil’s resurgence, the higher prices from OPEC’s largest producer come in the context of a refining industry that’s struggling to turn a profit. A refiner using Saudi Arabia’s flagship Arab Light crude in Singapore would currently make a loss with the most basic processing, according to Oil Analytics data.

©2020 Bloomberg L.P.