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Oil prices have recently fallen as a resurgence in coronavirus cases and looming layoffs in the United States cloud the economic outlook.
Futures in New York slid 3.1% on July 16, moving in sympathy with stocks, after trading in a narrow range during the week. Wells Fargo & Co., the largest employer among US banks, was among several companies to announce mass layoffs after a grim jobs report. Meanwhile, the Messla oilfield and Sarir refinery in eastern Libya have resumed production, threatening to boost global supply as demand remains weak.
“There is a general malaise in the market at the moment, which has been accompanied by the realization that we could be stuck in this for much longer than expected,” said Tariq Zahir, Global Macro Program Director. At New York. Tyche Capital Advisors. “When you have negative economic news, as well as more negative coronavirus news, everything will be down and you will see selling like we saw today.”
WTI and Brent prices were unable to recover past the mid-$40s Benchmark US crude’s rebound from negative territory in April was capped by a continued US supply glut and rising virus cases across America. California and Texas recorded some of their largest daily increases in cases and deaths this week, while crude inventories are at near record highs.
US fuel demand is also lagging other parts of the world, with seasonal gasoline consumption still at the lowest level in decades and diesel inventories at the highest level since 1983. Goldman Sachs Group Inc .recommended buying Brent futures rather than West Texas Intermediate as U.S. stocks rise. .
Job cuts by Wells Fargo and others, as well as downsizing warnings by United Airlines Holdings Inc., are not just threatening the economy’s recovery. They could also further reduce fuel demand.
There are “tens of thousands of layoffs of people who are going to be out of work and not driving,” said John Kilduff, a partner at Again Capital, a New York-based energy-focused hedge fund. “All of a sudden there’s a real focus on the downside potential for oil demand here.”
RELATED: Oil slips as looming OPEC supply hike adds to demand woes
To further complicate market dynamics, tankers that stored much of the world’s oil as demand crunched due to the pandemic are beginning to unload their cargoes. In key locations outside Asia, floating stocks have halved to about 35 million barrels since peaking in May, according to Vortexa Ltd., an analytics firm.
For Latin American producers supplying oil to China, the tighter sour crude market is creating a new distribution of winners and losers.
While Colombia has sold off heavy Castilla crude thanks to higher Chinese demand, sales of medium-sweet Lula oil from Brazil are slowing, according to people with knowledge of the situation.
OPEC+ is another step closer to combating the cheating that has dogged the cartel since its inception. Angola has sent a new letter to the OPEC president pledging to fully meet its production target, along with further cuts as compensation for past cheating, according to a delegate who asked not to be identified.
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