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June 29, 2020

Oil prices slip as lockdowns may resume due to rise in Covid-19 cases

Oil prices have edged down as Covid-19 cases rose in the US and other countries, prompting some nations to restart partial lockdowns.

By Himaja Ganta

Oil prices have edged down as Covid-19 cases rose in the US and other countries, prompting some nations to restart partial lockdowns.

The resumption is expected to affect fuel demand.

Brent crude fell by $0.83 or 2% at $40.19 a barrel, while US West Texas Intermediate (WTI) crude futures were down by $0.80 or 2.1% to $37.69 a barrel.

Global Covid-19 cases have surpassed over ten million on 28 June as India and Brazil battled daily outbreaks of more than 10,000 cases.

New outbreaks in countries such as China, New Zealand and Australia are prompting governments to restart lockdown restrictions.

The Organization of the Petroleum Exporting Countries (OPEC), including Russia and other producers, together known as OPEC+, have been reducing supply by approximately 9.7 million barrels per day (mbps) since 1 May.

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

Fuel demand has seen an improvement after many countries across the world have eased Covid-19-related lockdown restrictions.

OCBC Bank Singapore economist Howie Lee said: “The second wave contagion is alive and well.

“That is capping the bullish sentiment that we have seen in the last six to eight weeks.”

Despite production cut efforts from the OPEC+ Group, crude inventories in the US hit all-time highs.

ANZ analysts said: “There is also a risk that gains in prices recently could see some US shale producers restart wells.”

Furthermore, higher oil prices are pushing some of the producers to restart drilling, though the number of operating oil and gas rigs has been reduced to a record low last week, which ended on 26 June.

Lee added: “In the next one-two weeks, we should see an uptick in rig count commensurate with the pick-up in oil production.”

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