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Oil declines on new US Covid-19 infection record

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Oilfield Technology,


Oil prices fell this morning, reversing some earlier gains of the week, as new record Covid-19 infections in the US worry traders.

Rystad Energy’s Oil Markets Analyst, Louise Dickson, has commented on the morning's events:

"As much as the market wants to hold on to good news about the demand recovery, implied by the stock draws in the US, Covid-19 statistics raise a flag for concern higher and higher by the day.

Yes, crude stocks fell by surprise levels last week and prices enjoyed higher levels after the EIA announcement. Also gasoline use seems to be increasing. But both are at risk.

It’s really shocking for the market to see US reported infections hitting new highs by the day. News that Thursday was a day of yet another record sobered up the market today and led prices a bit lower, erasing some of the week’s earlier gains.

If this trend continues, oil demand in the region is at risk. It seems that only new enforced restrictions can restrict the spread of the virus currently in the US and if lockdowns are applied again nationwide the second wave will hit the country’s oil demand hard.

If infection rates keep up the worrying trend, positive employment data for June, which also have been a reason for market enthusiasm, may turn again to negative in coming months.

Is OPEC+ willing to save the day in such a possibility? OPEC+ has been the healing carpenter of the oil market in May, June and July, but there are no hints whether the good Samaritan will continue his deeds into August. Russian oil minister Alexander Novak confirmed OPEC+ is still waiting on more data to make a decision about extending deep cuts into August. The deeper cuts in July not only brought much needed supplies off the market, but calm in futures trading of Brent and WTI contracts. But by August, the OPEC+ group is set to increase production from 34 million bpd in July to 36 million bpd in August (both figures are target production levels and the stated cut targets of 9.6 million bpd in July and 7.7 million bpd for August). The decision to extend the deep cuts through July was made on 6 June 2020, which means next week we should be hearing something a bit more decisive.

The US is not the only country with worrying Covid-19 statistics though. More countries in South America, the Middle East and Asia offer reasons for concern.

For the moment oil prices mostly follow traditional fundamentals, which are how supply and demand currently look like, but as we go through the year the number of global infections could again become a direct part of the equation.

Already producers have realised that even in the most optimistic scenario, demand will not recover with the same pace the market initially hoped for. Not only 2020, but also 2021 will likely be a year that oil historians will tag as a Covid-19 affected market period."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/03072020/oil-declines-on-new-us-covid-19-infection-record/

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Upstream news US upstream news Oil price news Oil & gas news