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Oil dips as demand worries outweigh tighter supply

CommoditiesJun 22, 2020 03:05AM ET
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© Reuters. An oil pump is seen just after sunset outside Saint-Fiacre

By Florence Tan

SINGAPORE (Reuters) - Oil prices slid on Monday as concern grew that a record rise in coronavirus infections worldwide could stall a recovery in fuel demand, outweighing tighter supplies from major producers.

Brent crude (LCOc1) fell 10 cents, or 0.2%, to $42.04 a barrel by 0655 GMT, while U.S. crude (CLc1) was at $39.72 a barrel, down 11 cents, or 0.3%.

Both contracts rose about 9% last week and Brent crude futures have flipped into backwardation, so that oil for immediate delivery costs more than that to be provided later, usually an indication of tightening supply.

"The market has entered a slight backwardation up to October. It times in with some of our estimates that by around November, the market could get really tight," said Howie Lee, an economist at Singapore's OCBC Bank.

"I find it more difficult for oil to move higher at this point, especially with the growing concern about second-wave contagion."

In Canada and the United States, the number of operating oil and natural gas rigs fell to a record low last week, even as higher oil prices prompt some producers to start drilling again.

The OPEC+ group, consisting of the Organization of the Petroleum Exporting Countries and its allies, including Russia, has yet to decide whether to extend a record supply cut of 9.7 million barrels per day (bpd) for a fourth month in August.

However, Iraq and Kazakhstan pledged to comply better with oil production cuts during an OPEC+ panel on Thursday.

Oil prices have also been supported by a recovery in fuel demand globally following a collapse in April-May during virus shutdowns, as nations worldwide resume economic activity.

Still, the World Health Organization reported a record jump in global infections on Sunday, with the biggest increase seen in North and South America.

"The potential economic damage of a new round of COVID-19 countermeasures will likely contain any investor enthusiasm," said Michael McCarthy, chief market strategist at CMC Markets.

Spikes in virus infections in some regions, such as the Chinese capital of Beijing and Australia's second-most populous state of Victoria, have prompted curbs on movement to limit the spread.

Graphic: Brent flips into slight backwardation in June, https://fingfx.thomsonreuters.com/gfx/ce/xklpyzeyzvg/Pasted%20image%201592793700430.png

Oil dips as demand worries outweigh tighter supply
 

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Comments (6)
Ted Dirty
DirtyTed Jun 22, 2020 3:18AM ET
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Go out in the traffic with your car, and you will see the true nature of your worries....
Chris Sundo
Chris Sundo Jun 22, 2020 2:07AM ET
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oil precedes the market. monday's opening might be another opportunity to sell into strength and allow new shorting
Notvery Goodathis
Peteymcletey Jun 22, 2020 12:25AM ET
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Oil is expensive. Demand isn't really back to normal. Most countries are still making promises about cuts. Why would they cut now when prices are back?
Matthew Mover
Matthew Mover Jun 21, 2020 11:59PM ET
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Dont listen to the FAKENEWS the real V recovery is right here, straight off rhe EIA website. https://www.eia.gov/petroleum/weekly/images/gtpsusm.gif
Akash Kurien
akashkurien Jun 21, 2020 11:59PM ET
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Hey, if their would be a second wave, surely there would be a deep dip again, and into a W shape territory.
Michael Redden
Michael Redden Jun 21, 2020 11:59PM ET
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no second shutdown possible.
Ha Has
Ha Has Jun 21, 2020 11:59PM ET
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W shape is very rare, in fact I think it just happened once before or may be not at all.
Chris Sundo
Chris Sundo Jun 21, 2020 11:59PM ET
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Mattew Mover -- That blue curve for gasolene demand has come back up a lot less than to what the S&P or Nasdaq have come back to.
Chris Sundo
Chris Sundo Jun 21, 2020 11:59PM ET
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.. seems that the curve for gasolene demand is still below its 50 dma
Brian Poland
Brian Poland Jun 21, 2020 9:57PM ET
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Oil drillers that have been able to accumulate other operations may be a excellent purchase.
Sam Donald
Sam Donald Jun 21, 2020 9:21PM ET
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Even though coronavirus cases are rising I don't believe there will ever be a shutdown again. Gas prices are increasing are my state due to demand
 
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