Abu Dhabi: Oil prices on Friday posted a first weekly loss in seven weeks, with rising number of worldwide COVID-19 cases putting pressure on oil markets with fears of a second wave.
Global benchmark Brent crude saw its prices fall below the $40 mark with trading closing on $38.73 and West Texas Intermediate (WTI) at $36.26. Oil markets will keep a close eye on the number of new coronavirus cases when opening again this week, with a second wave of the pandemic holding the potential to reverse the rise in oil demand that has seen prices steadily go up.
“Rising cases of Covid-19 in US states that have recently opened up apparently were the catalyst to shake markets but the situation in emerging markets remains even worse,” said Edward Bell, commodity analyst at Emirates NBD. “Case numbers in Brazil, Russia and India continue to escalate with Brazil having the second highest death count and converging on 1 million confirmed cases,” he added.
And with demand possibly taking a hit from a second outbreak, Bell noted this would be taking place in a market where demand is already down.
“While there have been signs of recovery from the absolute trough of demand in April, product supplied data from the US show gasoline demand down 20% year on year in mid-June while jet fuel consumption is off by nearly 60% on year-ago levels.
“The US encapsulates a large, but individual, picture of global oil demand but as economies remain hampered by social distancing and economic contraction, we would expect a roughly analogous demand profile across most major markets,” he added.
Despite the volatility, oil markets do however find themselves better positioned than when the first outbreak occurred according to Rystad Energy’s head of oil markets Bjornar Tonhaugen, as a result of deep production cuts by Opec+.
“It’s not all bad. We do believe oil prices will be able to stabilise again above $40 in the third quarter, if Covid-19 does not return for a second visit, as fundamentals point towards supply deficits.
“Deeper-than-expected supply cuts by Opec+ already in May now extended through July, coupled with steadily improving day-by-day trends for road fuels demand…have brought the crude market back into balance in June,” he added.
“We see sizeable stock draws commencing in July with a 3.3 million supply deficit for the month. The supply deficit will extend through year-end as long as Opec+ stick to their guns and adhere to the latest deal,” Tonhaugen noted, highlighting how market dynamics have changed from an oil glut to a production deficit.