Oil prices edge upwards after 4% drop on Monday

Melbourne/Singapore — Oil rose in early trade on Tuesday, paring sharp overnight losses, as the latest tropical storm in the Gulf of Mexico lost strength, but worries about fuel demand persisted with flare-ups around the globe in coronavirus cases.

Brent crude futures rose 14c, or 0.3%, to $41.58 a barrel at 5am GMT.

US West Texas Intermediate (WTI) crude futures for October, due to expire on Tuesday, rose 19c, or 0.5%, to $39.50 a barrel. The more active November contract rose 13c, or 0.3%, to $39.67.

Crude prices, which fell about 4% on Monday, steadied as Texas refineries stayed open despite forecasts of heavy flooding, with Tropical Storm Beta expected to keep losing strength, allaying worries about US refinery demand for feedstock.

“The recovery in sentiment after the rout in risk assets seen a fortnight ago was fragile,” said Vandana Hari, energy analyst at Singapore-based Vanda Insights. “This week, the market is recalibrating to a likely stalling of the economic recovery in Europe as several countries in the region impose fresh restrictions to contain a surge in the coronavirus.”

Monday’s price slump was spurred by concerns that an increase in coronavirus cases in major markets could lead to fresh lockdowns and hurt demand. That raised the possibility that Libyan oil could return when it is not needed.

“We had a pretty punchy risk-off session (overnight) … on fears around the risk that a Covid resurgence starts to have negative impacts on demand again,” said Lachlan Shaw, National Australia Bank’s head of commodity research.

Markets are nervous about demand in places such as the UK, where fresh restrictions are being imposed. US health officials are also warning of a new wave in the coming winter months.

“When the virus resurges, governments lock down, impose restrictions, and individuals and businesses start to retreat. It’s all bad for demand,” Shaw said.

Traders will be watching for the American Petroleum Institute’s data on US oil inventories due later on Tuesday.

US crude oil and gasoline stockpiles likely fell last week, while inventories of distillates, including diesel, were seen climbing, a preliminary Reuters poll showed.

Reuters