Oil prices have edged down more than 2% due to concerns that new lockdowns to limit the spread of Covid-19 cases in the US could threaten the recovery of fuel demand.
The reduction is also due to expectations that OPEC+ might ease supply cuts from next month in an upcoming technical meeting.
Brent crude futures were down by $0.88 to $41.84 per barrel while US West Texas Intermediate (WTI) crude futures dropped by $0.96 to reach $39.14 a barrel, Reuters reported.
According to the news agency, OPEC’s Joint Ministerial Monitoring Committee (JMMC) will meet on 15 July to recommend the next phase of cuts.
On 13 July, California Governor Gavin Newsom has ordered bars to close and restaurants, movie theatres, bars, zoos and museums to shut indoor operations as Covid-19 cases soared.
The move comes after the reinstatement of some restrictions in the US states of Florida and Texas.
AxiCorp market strategist Stephen Innes was quoted by the news agency as saying: “With the California soft lockdown now framing the picture, July could be an even more challenging month for oil than expected with even more demand woes emanating from coronavirus-linked uncertainty.”
Oil prices have recovered after the Organization of the Petroleum Exporting Countries (OPEC), Russia and allies, together known as OPEC+, has been reducing supply by approximately 9.7Mbpd since 1 May.
Earlier last month, the group also agreed to extend output cuts until the end of this month.
Under the existing agreement, the group is set to taper supply cuts to 7.7Mbpd from August through December.
Reuters cited Citi analysts as saying that the implementation of a 2Mbpd increase in output from next month could weigh on the market due to the uncertainties as a result of Covid-19 outbreak.
Meanwhile, the market is awaiting data from industry groups the American Petroleum Institute (API) and the US Energy Information Administration (EIA), which are due to be released on 14 July and 15 July, respectively.
According to a preliminary Reuters poll, analysts estimated a drop of 900,000 barrels in US gasoline stocks and 2.3 million barrels in the crude oil inventories in the last week that ended on 10 July.