Oil Drops Slightly on Sentiment That Economy Will Take "Many Months" To Recover

However, data suggests demand is resurging as lockdowns ease: File Image/PixaBay

A warning from the U.S. Federal Reserve that could hardly be considered news - that the economy will take many months to recover thanks to the government imposed coronavirus lockdowns - nonetheless resulted in traders ignoring good news and causing oil prices on Wednesday to fall, although minimally.

Jerome Powell, Federal Reserve chair also renewed his skepticism of negative interest rates, and by the end of Wednesday's session Brent fell 79 cents to settle at $29.19 per barrel, while West Texas Intermediate shed 49 cents to settle at $25.29 per barrel.

Bob Yawger, director of energy futures at Mizuho, complained that "It was such a negative speech it even eliminated what was easily the most bullish report since January."

Yawger was referring to Energy Information Administration data showing that U.S. crude stockpiles falling by 745,000 barrels, compared with analysts' expectations for a 4.1 million-barrel rise - indicating that domestic economy is beginning to recover despite Powell's sentiments.

Indeed, Tom Kloza, head of global energy analysis at Oil Price Information Services, said of gasoline demand, "Easter weekend was the bottom: that was about 47 percent demand destruction [and] since that point and through May, we've been recovering about 1 percent of demand every day.

"We are going to hit a wall on that: we think that right now demand destruction is about 30 percent."

More good news on Wednesday came in the form of former price war foes Saudi Arabia and Russia declaring they are firmly committed to achieving oil market stability and expediting a rebalancing of the market; a statement read in part, "We are also pleased with the recent signs of improvements in economic and market indicators, especially the growth in oil demand and the ease in concerns about storage limits."

Still, worry within the trading community is being stoked by those who oppose the growing number of return to work policies across the globe as well as a largely compliant media: U.S. health official Anthony Fauci earned headlines by telling Congress that easing coronavirus lockdowns could set off new outbreaks of COVID-19.

Relatively eclipsed was the bombshell disclosure of a study last week of 1,000 coronavirus patients in New York hospitals: it found that 66 percent were people staying at home and not essential workers, and this prompted the Daily Mail newspaper to ask: 'Does lockdown even work?'

The question dovetails with  arguments from doctors such as Leonid Eidelman, the former head of the Israel Medical Association, who thinks a complete lockdown of public life is counter-productive and even detrimental to the health care system.

Eidelman also reiterated that "the mortality of this virus is between two and four percent of those who are infected; between 250,000 to 600,000 people die from regular flu every year [globally]"; he said social distancing and enhanced personal hygiene were the main tools in preventing the virus from spreading.

In a similar vein, Dr. Gabriel Leung, an infectious disease epidemiologist and dean of medicine at the University of Hong Kong, said massive lockdowns and distancing can't be sustained, and therefore several cycles of a "suppress and lift" policy for restrictions must occur "in ways that can keep the pandemic under control but at an acceptable economic and social cost" until either herd immunity is achieved or a vaccine is developed.

He added, "Policy must not be determined based on the daily count of reported cases ­-  the tallies you read about constantly in the news - because those are unreliable."