Oil prices sink as fuel demand concerns outweigh supply cuts

22 June 2020 (Last Updated June 22nd, 2020 12:28)

Oil prices have edged-down due to concerns that a second wave of Covid-19 infections across the world could stall fuel demand recovery.

Oil prices sink as fuel demand concerns outweigh supply cuts
In July, OPEC+ decided to ease the production cuts to 7.7 mmbd from August due to slight recovery in crude demand, and gradual opening up of economies worldwide. Credit: Sujin Paluga from Pixabay.

Oil prices have edged-down due to concerns that a second wave of Covid-19 infections across the world could stall fuel demand recovery.

These concerns outweighed tighter supplies from OPEC producers.

Brent crude was down by $0.10 or 0.2% to reach $42.04 a barrel, while US West Texas Intermediate (WTI) crude futures were down $0.11 or 0.3%, to touch at $39.72 per barrel, Reuters reported.

Both the benchmarks rose about 9% during last week.

Singapore OCBC Bank economist Howie Lee was quoted by the news agency as saying: “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.

“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 US, the number of operating oil rigs fell to a record low last week that ended on 19 June, despite higher oil prices prompting some producers to commence drilling again.

As agreed in April, the Organization of the Petroleum Exporting Countries (OPEC), including Russia and other producers, together known as OPEC+, have been curbing supply by approximately 9.7Mbpd since 1 May.

Earlier this month, the group also agreed to extend output cuts until the end of next month.

The group is yet to decide on an extension of supply cuts for a fourth month in August.

During an OPEC+ panel on 18 June, Iraq and Kazakhstan have announced their plans for oil production cuts to compensate for overproduction in May.

On 21 June, the World Health Organization (WHO) reported a record rise in global infections, with the highest jump of the cases seen in North and South America.

CMC Markets chief market strategist Michael McCarthy said: “The potential economic damage of a new round of Covid-19 countermeasures will likely contain any investor enthusiasm.”