Oil is set for a third weekly gain in New York, but the pandemic is leading to an uneven recovery and clouding the demand outlook.
October crude futures rose to a five-month high on Monday after surging with equities on signs that an economic recovery could be within reach. However, that optimism was tempered by downbeat comments from the U.S. Federal Reserve and OPEC on the demand outlook due to the coronavirus, while American unemployment benefits unexpectedly increased last week.
Oil’s rally from below zero stalled in early June near $40 a barrel but prices had started to push higher recently, despite many countries struggling to contain the outbreak. The message from this week’s OPEC meeting was that the market remains fragile and the demand outlook uncertain, with fresh pressure exerted on quota cheats to deliver on promised output curbs.
“The U.S. jobless data shows the threat pandemic is posing to the global economy and overall consumption,” Will Sungchil Yun, a senior commodities analyst at VI Investment Corp., said by phone from Seoul. “Even when there’s a vaccine available, OPEC may be required to step up to deal with the supply glut due to the weakened demand.”
Brent’s prompt spread — the difference between the prices of the front-month contract and that of the following month — has weakened to its widest contango structure since May, signaling oversupply.
While U.S. crude stockpiles fell last week, the outlook for consumption is gloomy. Exxon Mobil Corp.’s Baton Rouge refinery in Louisiana is idling one of two fluid catalytic cracking units due to low demand, according to a person familiar with operations. The plant already idled one of three cokers earlier this month and poor margins may mean more U.S. Gulf refiners reduce coker runs, taking less heavy crude in August and September, according to traders.