Oil drops as new coronavirus outbreaks raise fuel demand concerns

Oil drops as new coronavirus outbreaks raise fuel demand concerns”

U.S. West Texas Intermediate crude oil futures are trading slightly better on Friday after posting a steep sell-off the previous session.

Oil slumped on Monday, extending last week's losses, as new coronavirus infections hit China, Japan and the United States' increasing concerns that a resurgence of the virus could weigh on the recovery of fuel demand.

OPEC+ cut oil supplies by 9.7 million barrels per day (bpd), about 10% of pre-pandemic demand, and agreed last weekend to extend the reduction.

A few days back, Nigeria suggested that it would now fully comply with the OPEC agreement and would bring down its production.

Producers from the USA, as well as from the Organisation of the Petroleum Exporting Countries (Opec) and its allies, have been cutting supply, some by record amounts.

A rally that raised oil off April lows has come to a shuddering halt this week as the market faced the reality that the coronavirus pandemic may be far from over, with cases in the United States alone passing two million. "Adding to the bearishness is global markets believing that a second wave of contagion has begun in the USA and possibly China". Now it will have to compensate for the overproduction in addition to regular curbs.

More news: Berger beats Morikawa in sudden-death playoff at Colonial

While the production cut is coming closer to the estimated decline in the demand by OPEC, the market is now concerned about the demand, and indication concerning the global oil demand would dictate the price action going forward.

Recent efforts by OPEC and allies, which might not be working in the short-term, has now somewhat induced a fear related to the supply, which could be inferred from the U-turn witnessed in the CBOE crude market volatility index. The bank increased its 2020 average price estimates for both Brent and WTI by $4 a barrel to $41 and $37, respectively.

"It is not surprising then that the return of risk aversion, which hit stock markets hard yesterday, is also leading to profit-taking on the oil market", Eugen Weinberg, an energy analyst at Commerzbank Research, said in a note Friday. It has lost nearly 12% since closing at a three-month high on June 10.

Nevertheless, the update from the US Energy Information Administration (EIA) showed field production of crude narrowing to 11,100K from 11,200K in the week ending May 29, and the response by oil producers may continue to stabilize the energy market as US output falls to its lowest level since October 2018.

Fears that the coronavirus pandemic may be far from over has brought the rally to a halt, with about half a dozen USA states seeing a spike in new infections.

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