Oil prices fall as new lockdowns dent fuel demand

Melbourne/Singapore — Oil prices slid on Tuesday amid concerns that a nascent recovery in fuel demand could stall as a new wave of Covid-19 infections around the world sparks tighter lockdowns just as producers ramp up output.

US West Texas Intermediate (WTI) crude futures fell 30c, or 0.7% to $40.71 a barrel at 4.14am GMT, while Brent crude futures fell 37c, or 0.8% to $43.78 a barrel.

The slide comes after WTI rose 1.8% and Brent climbed 1.5% on Monday on better-than-expected data on manufacturing activity in Asia, Europe and the US showing factories were emerging from the worst of the early coronavirus pandemic impact.

“On the demand side, we had encouraging global manufacturing data. But there is still a bit of evidence of the oil demand recovery stalling in a few markets with a resurgence of Covid-19,” Lachlan Shaw, head of commodity research at National Australia Bank, said.

Denting fuel demand, cities from Manila to Melbourne are tightening lockdowns to battle new infections, while Norway has stopped cruise ship traffic in the latest European travel alarm.

In a further sign of a patchy rebound in demand, analysts estimate US refined product stockpiles rose last week, according to a preliminary Reuters poll ahead of data due from the American Petroleum Institute industry group later on Tuesday and the US government on Wednesday.

Five analysts estimated, on average, that US inventories of petrol rose by 600,000 barrels. Distillate stockpiles, which include diesel and heating oil, was likely to grow by 800,000 barrels, while crude stocks fell by 3.3-million barrels in the week to July 31.

At the same time producers in the Organisation of the Petroleum Exporting Countries (Opec) and its allies, together known as Opec+, are stepping up output this month, adding around 1.5-million barrels a day of supply. US producers also plan to restart shut-in production and inventories remain near historical highs.

“I think it is fair to say that most oil market participants expected more downward pressure on oil to start the week with Covid-19 ravaging the landscape and Opec+ adding more barrels into play,” said Stephen Innes, chief global markets strategist at AxiCorp, in a daily note.

Reuters