Meanwhile, a noted law firm predicts more oil and gas bankruptcies: File Image/PixaBay
Even though word came on Thursday that coronavirus infection rates in key U.S. hot spots are starting to flatten, the dread caused by the sheer volume of virus media coverage had a predictable effect on already skittish crude traders, and prices fell accordingly.
Spooked by days-old news that the recent infection spikes prompted states such as California and Texas to reimpose some business restrictions, traders caused Brent to settle down 94 cents at $42.35 per barrel, and West Texas Intermediate to settle down $1.28 at $39.62 per barrel.
The pessimism in trading circles wasn't helped by India, whose fuel demand fell 7.9 percent in June compared with the same month last year.
Tariq Zahir, Tyche Capital Advisors LLC
There's an overall malaise in the market right now
Phil Flynn, senior market analyst at Price Futures Group Inc., remarked that "The Indian demand numbers were disappointing: that didn't fit the narrative we were hearing that India's economy was bouncing back."
Analysts believe the recent surge in Covid cases is stalling fuel demand recovery, and based on that premise law firm Haynes and Boone predicted that oil and gas bankruptcies in North America are likely to continue this year; to date in 2020, 23 oil producers and 18 oilfield service firms have sought protection from creditors.
The report noted that with U.S. crude oil futures currently about $40 per barrel, this "is not a sufficient clearing price for many heavily leveraged shale producers."
Contributing to traders' gloom on Thursday was Wells Fargo announcing massive layoffs and warnings of downsizing by United Airlines Holdings Inc., all of which prompted Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC, to remark that "There's an overall malaise in the market right now, which has come with the realization that we might be stuck in this for a lot longer than we anticipated."
Presumably the malaise will continue, not because of the virus itself, but because the trading and analytical communities make decisions based on headlines, and mainstream media outlets during this U.S. presidential election year seem determined to focus on troubling virus news and downplay positive developments, a case in point being reports from the UK that only 22 percent of people testing positive for the virus had any symptoms on the day of their test.
While this would demonstrate that a lot more people are resistant to the effects of virus than originally thought (which in turn would contribute to a steadily lowering worldwide death rate), the negative spin is that these asymptomatic people are unwittingly putting others at risk by roaming around freely.
Unsurprisingly given the morbid thirst for bad news, traders apparently ignored what would normally have been considered great news for the economy, in the form of U.S. vice president Mike Pence stating that "We are actually seeing early indications of a percent positive testing flattening in Arizona and Florida and Texas."
Pence, who made the remarks at a coronavirus task force briefing at the Department of Education also said authorities were seeing declining numbers of emergency room visits as well in Arizona and Florida.
Even the Centers for Disease Control and Prevention, no stranger to disseminating alarm, on Thursday seemed bewildered by the negative sentiment affecting people and impacting business recovery: its director, Robert Redfield, said that "I cannot overstate how important I think it is now to get our schools in this nation reopened; the reason I push it is that I truly believe it's for the public health benefit of these kids."
He added that he does not want schools to go "overboard" by failing to recognize that the virus is "relatively benign" for young people.