Oil posted its worst week in three amid concerns that rising global COVID-19 cases are slowing the economic recovery.
West Texas Intermediate for May delivery on Friday dropped 0.47 percent to US$59.32 a barrel, and ended the week down 3.47 percent, its biggest weekly loss since the middle of last month.
Brent Crude for May delivery fell 0.4 percent to US$62.95, declining 2.94 percent from a week earlier.
With the OPEC and its allies planning to start raising output, markets are now focused on whether the demand recovery will be enough to absorb growing supplies.
While consumption is climbing in India and the US, rising COVID-19 cases and the possibility of stricter travel limits in Europe are muddying the forecast and putting pressure on crude.
Oil on Monday plunged after the UK said it might delay global travel beyond May 17.
“The COVID situation has really not had a strong recovery in Europe and across many emerging markets, and that’s really weighed down the demand outlook for oil,” Oanda Corp senior market analyst Edward Moya said.
A stronger US dollar also weighed on oil on Friday, reducing the appeal of commodities priced in the currency. A higher-than-expected rise in US producer prices last month stoked inflation concerns.
“If we get some hotter inflation readings, that could send [US] Treasury yields higher again,” negatively impacting oil, Moya said.
Saudi Arabia said it remains confident that OPEC+ made the right decision to increase production over the next three months, and there are signs of better days ahead for demand that could soak up the additional barrels.
India’s oil-products demand last month rose to the highest since late 2019, while Germany reiterated support for a short, strict lockdown in the country.
In the US, traffic is roaring back in some cities, an indication of better demand this summer.
Making the calculation even more complex are ongoing talks between Iran and world powers to resuscitate a 2015 nuclear deal, which would set the stage for the Persian Gulf to increase supply. Negotiations are set to continue next week, although no direct contacts between Iranian and US envoys have yet been made.
Crude in New York has been trading at about US$60 a barrel since the middle of last month, with market volatility slumping to the lowest in a month.
Prices have not broken out of a US$5 trading range in the past few weeks, and have oscillated in smaller and smaller bands with each passing day, creating a technical pattern some see as indicative of a breakout higher.
“We’re toward the lower end of the range on concerns over the global economic recovery,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy. “Until we start to see some jet fuel demand come back, Asian demand pick up and European countries ease restrictions,” prices might not surge much higher in the near term.
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