Oil’s weekly winning streak has stopped in its tracks.
After six straight periods of gains, US benchmark crude futures dropped this week.
Market sentiment soured after the US Federal Reserve warned of the COVID-19 pandemic’s prolonged damage to the US economy. Plus, fears over a second wave of virus infections threaten to disrupt any demand recovery.
Photo: Reuters
West Texas Intermediate (WTI) declined 8.2 percent for the week, while Brent was down 8.8 percent.
While crude has pushed higher from a historic crash below zero in April — buoyed by OPEC+ production curbs that began last month — the market largely shrugged off the alliance’s recent move to extend those cuts.
“The past 24 hours have highlighted the perils of underestimating the economic fallout of the COVID-19 pandemic and the threat of fresh lockdowns,” PVM Oil Associates analyst Stephen Brennock said. “This isn’t the first and won’t be the last time that markets are guilty of complacency.”
Any recovery in crude would be largely dependent on a consumption comeback. Barclays PLC predicts the market has already seen the fastest improvement in demand and steepest drop in supply.
Meanwhile, Mercuria Energy Group Ltd chief executive officer Marco Dunand this week said that global crude consumption would return to about 95 million barrels a day by December, unless there is a significant second wave of coronavirus infections.
“We’re going to be stuck in this range between US$35 and US$40 a barrel,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston, Texas.
Breaking out is a matter of “how many additional virus cases prevent us from increasing demand,” he said.
Likely adding to the pressure on crude was the record withdrawal on Thursday from one of the largest exchange-traded funds (ETFs) in the oil market. WisdomTree’s WTI Crude Oil ETF had a little more than US$128 million worth of outflows, according to filings.
Optimism at the start of the week over the agreement by OPEC and its allies to extend curbs by a month quickly diminished after Saudi Arabia said it would cease extra voluntary cuts at the end of this month.
The deal even secured commitments from laggards, such as Iraq and Nigeria, after they were called out for their non-compliance.
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