Oil Dips As More Good Economic News Is Eclipsed By Covid Fears

by Ship & Bunker News Team
Friday August 21, 2020

Even though data suggests that the rate of global economic recovery from the government-imposed pandemic lockdowns continues to moving forward, oil traders on Friday were dismayed by the blips and worried about rising crude supply - thereby causing the commodity to drop by about 1 percent.

Brent settled down 55 cents, or 1.2 percent, at $44.35 per barrel and fell about one percent for the week; however, West Texas Intermediate's 86 cent drop to $42.34 per barrel still enabled the benchmark to achieve another modest weekly gain of nearly 1 percent.

The factors influencing traders were India's crude oil imports falling in July to their lowest level since March 2010, and U.S. motorists reportedly driving 13 percent fewer miles in June than a year earlier.

Analysts were also mixed about the news that Libya will soon resume oil exports after the country's  government in Tripoli announced a ceasefire: "This is a market that can't afford to absorb any additional barrels," said John Kilduff, founding partner at Again Capita, adding: "While I'm happy for them in striking a peace deal, it's problematic for the global supply situation and so that's a big part of today's selloff."

John Kemp, commodities analyst for Reuters, also struck a cautious tone in his Friday column: he noted that total stocks of crude and products have fallen five weeks out of the past six, but "progress has been slower than expected at the end of the second quarter, principally because of the lingering impact of the Covid-19 pandemic on consumption."

Kemp said if the slow pace continues, the Organization of the Petroleum Exporting Countries (OPEC) "will eventually have to revise its production schedule to cut output deeper for longer" - which, to the cartel's credit, it is already contemplating.

As with any negative sentiment linked to the pandemic, contrary evidence abounds, and Friday was no exception: while many oil traders view the U.S.'s economic recovery as slowing rapidly, Baker Hughes data released Friday showed that Permian oil drillers are "roaring" back, with the total number of active oil rigs rising by 11 to 183 this week - the biggest hike this year.

Also, the S&P 500 and Nasdaq closed at record highs on Friday, thanks to IHS Markit data showing U.S. business snapping back in August to the highest level since early 2019 and another report showing U.S. home sales rising at a record pace for a second straight month in July (and home prices hitting all-time highs).

And despite the latest Covid worry being the possible flurry of new infections arising from children going back to school, the Centers for Disease Control and Prevention on Friday reiterated that transmission possibilities are extremely limited.

As for initiatives that may help demand, Sweden on Friday said it was granting exceptions to its 50-person maximum for public events; and China on Friday told residents they no longer are required to wear masks outdoors.