Oil Makes Daily And Weekly Gains On Economic Recovery Despite Covid Spikes

by Ship & Bunker News Team
Friday July 24, 2020

Analysts may fear that the U.S. economic outlook has been darkened by rising Covid infections, but economic data from Europe was strong enough on Friday to cause oil prices to post a third positive week out of four; however, this time the gains were capped not by Covid, but by mounting tension between the U.S. and China.

Specifically, on Friday China ordered the closure of the U.S. consulate in Chengdu in retaliation for the latter ordering the closure of the former's consulate in Houston; offsetting this was Euro zone business activity growing in July for the first time since the coronavirus pandemic hit, which resulted in Brent settling 3 cents higher at $43.34 per barrel and West Texas Intermediate gaining 22 cents to settle at $41.29 per barrel.

For the week, Brent rose 0.5 percent, while U.S. crude rose 1.7 percent.

The European data came from IHS Markit's flash Composite Purchasing Managers' Index, regarded as a good indicator of the bloc's economic health; Phil Flynn, senior market analyst at Price Futures Group Inc., said the numbers were "much better than anticipated, which would suggest that demand destruction in recent months because of Covid-19 may not have been as bad as people thought."

The U.S. still proved to be an economic recovery powerhouse despite a drop in new orders as a result of infection rates increasing in that country: business activity was said to have reached a six-month high in July.

Still, the latest news from the world's largest oil exporter demonstrates just how devastating the government lockdowns to curb the virus has been to the energy market: the General Authority for Statistics reported that the value of Saudi Arabia's oil exports dropped by 65 percent year-on-year in May, or a fall of nearly $12 billion.

Compared with April, total exports, including non-oil exports of goods such as chemicals and plastics, decreased by 1.6 percent, or about $160 million.

But moving forward, prospects for recovery bode well for the crude market and in some regions are booming: crude shipments to China's east ports are set to hit another record high this month, with inflows so massive that they are reportedly straining offloading facilities (as of of July 23, about 120 million barrels of crude were waiting to discharge, up from around 80 million barrels in early July, Refinitiv data showed).

Also in China, the number of daily passenger flights has rebounded to 80 percent of pre-coronavirus levels, the country's aviation regulator said on Friday, with robust demand continuing despite fresh infections in some regions; this, along with reports of yet more advances in vaccine development, this time from Germany, China, and Russia, could lend support to oil in the coming days and weeks.