Oil prices drop due to uncertainty on US fuel demand recovery

7 August 2020 (Last Updated August 7th, 2020 09:48)

Oil prices have inched lower due to fears that fuel demand growth in the US will drop as a result of the resurgence of Covid-19 infections.

Oil prices drop due to uncertainty on US fuel demand recovery
According to analysts, rising Covid-19 infections remain to be the key uncertainty for growth of fuel demand. Credit: Jonathan Cutrer.

Oil prices have inched lower due to fears that fuel demand growth in the US will drop as a result of the resurgence of Covid-19 infections.

The drop is also due to halt in talks over a new stimulus deal in the US amid an economic crisis.

Brent crude futures fell $0.06 to $45.03 a barrel, while the US West Texas Intermediate (WTI) crude futures were down by $0.02 reaching $41.93 per barrel, Reuters reported.

The major uncertainty currently in the oil market is the resurgence of Covid-19 cases. This will finally decide how fast the demand for fuel rebounds.

According to analysts, rising coronavirus infections remain to be the main uncertainty for growth of fuel demand and oil prices.

AxiCorp market strategist Stephen Innes was quoted by the news agency as saying: “It really comes down to the demand situation.

“We’re caught in limbo trying to collect our thoughts on how the (coronavirus) curve is going to work. Is the flattening in the US going to outweigh flare-ups globally?”

Meanwhile, talks between top Democrats in the US Congress and the White House on a new coronavirus relief bill are lacking progress.

Democrats said that US President Donald Trump might have to issue executive orders if he does not seek further negotiations.

ANZ Research said in a note: “The virus relief package remains the last hope to boost (fuel) demand, with the US driving season coming to an end soon.”

Over the week, a weaker US dollar supported crude prices. A weaker currency makes dollar-denominated commodities such as oil more affordable to holders of other currencies because the commodities become cheaper.

The US dollar value against six overseas currencies fell to its lowest since 2018.