By Geoffrey Smith
Investing.com -- Crude oil prices ticked lower Tuesday amid concerns about the U.S. economy and its ability to ride out a second wave of Covid-19 across the south and west of the country.
However, the selling pressure wasn’t strong enough to force the benchmark U.S. futures contract meaningfully below the $40/barrel level, which appears to have become something of a psychological reference point, if not actually a real support levels deduced from technical analysis.
By 9:30 AM ET (1330 GMT), U.S. crude futures were down 0.8% at $40.31 a barrel, while the international benchmark Brent contract was down 0.4% at $42.91 a barrel.
The main supportive factors for the market continue to be the tightening of supply thanks to the OPEC+ pact on output restraint, and the gradual recovery of global demand from lockdowns in the second-quarter.
A survey by S&P Global Platts published on Tuesday showed the Organization of Petroleum Exporting Countries pumping at its lowest in over 30 years, with Saudi Arabia pumping at only 7.58 million barrels a day, and Venezuela – languishing after years of misrule under President Nicolas Maduro and his predecessor Hugo Chavez- pumping as little as 280,000 barrels a day. The same survey showed Russia, the most important non-OPEC signatory to the current output deal, pumping only 8.5 million barrels a day.
The market was also still taking comfort from International Energy Agency head Fatih Birol’s comments on Monday, dismissing fears that the pandemic had hastened the day of ‘peak oil demand’.
"If oil demand goes back to 100 million b/d I would not be surprised. And under a strong recovery, I would not be surprised if it went higher than that," Birol was quoted by newswires as saying.
The IEA currently expects world oil demand to recover to pre-pandemic levels no earlier than 2022.
The counterweight to such messaging was a warning of large-scale asset impairments by Italian major Eni (DE:ENI), which joined Shell (LON:RDSa) in revising down its long-term forecast for refining margins. Eni now sees long-term margins in the Mediterranean at around $5 a barrel, down by over half from only five years ago.
At 4:30 PM ET, the American Petroleum Institute will present its weekly data on U.S. inventories. Consensus forecasts for the government’s numbers, due on Wednesday, reflect expectations of a 3.4 million barrel draw on crude stocks.