Oil Dips With Demand Woes Offsetting Signs of Tightening Supply

(Bloomberg) -- Oil futures fell for the fist time in a week as uncertainty over an economic recovery in the U.S. that could boost fuel consumption offset signals of tightening global supply.

Investors are awaiting an employment report out of the U.S. on Friday, with forecasts pointing to a slowdown in job gains last month, or worse. Meanwhile, Iraq will cut production in August by an additional 400,000 barrels a day to compensate for missing its production target in previous months, the state oil-marketing organization Somo said.

“There’s a dialogue developing here that the jobs report could show no job creation, it could be a negative number,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “And if that’s the case, that’s a horrible demand indicator for crude oil.”

In what may be the last remaining hope for spurring U.S. demand in the waning days of the summer driving season, Democrats and Republicans are trying to push forward a virus relief package. President Donald Trump said he expects to sign orders on Friday or Saturday extending enhanced unemployment benefits and imposing a payroll tax holiday.

Iraq’s pledge to further reduce output comes as Saudi Arabia cut pricing to Asia and Europe less than expected and left prices for the U.S. unchanged at the highest levels in months.

Oil futures in New York pulled back after testing the upper bound of their recent trading range, where they’ve struggled to rally far beyond $40 a barrel. U.S. crude stockpiles falling for two straight weeks and a weaker dollar have provided support for prices, but rising coronavirus cases are continuing to weigh on sentiment. The drop in U.S. gasoline demand is going to get worse, according to Standard Chartered Plc, with analysts saying the decline in August from year-ago levels will get steeper.

“Gasoline demand remains subdued,” said John Kilduff, a partner at Again Capital LLC. “Even when you get some rays of hope, there’s still this weight on the market that’s going to prevent the gains from holding up.”

In physical markets, Mars Blend, a high-sulfur crude, rose to as much as $1.35 a barrel above Nymex WTI futures this week, the widest premium in roughly a month, but has eased off slightly in the last three sessions. Heavy Louisiana Sweet crude climbed 25 cents to $1.60 a barrel over Nymex oil futures on Thursday, the largest premium in almost two weeks.

©2020 Bloomberg L.P.