Oil set for third weekly gain with bearish headwinds mounting

Oil is set for a third weekly gain in New York on nascent signs of a demand recovery, but the pandemic is continuing to cloud the outlook while concerns are rising about over-supply.

October oil was steady near $43 a barrel and up 1.5% for the week. Futures surged to a five-month high on Monday on fresh China stimulus and as a gauge of builder sentiment in America jumped to its highest since 1998. However, optimism was tempered by downbeat comments from the US Federal Reserve and OPEC+ on the demand outlook due to the coronavirus, while American unemployment benefits unexpectedly increased last week.

Oil’s rally from below zero stalled in early June near $40 a barrel but prices have started to push higher recently, despite many countries struggling to contain the outbreak. The message from this week’s OPEC+ meeting was that the market remained fragile and the demand outlook uncertain, with fresh pressure exerted on quota cheats to deliver on promised output curbs.

“The US jobless data shows the threat pandemic is posing to the global economy and overall consumption,” Will Sungchil Yun, a senior commodities analyst at VI Investment Corp., said by phone from Seoul. “Even when there’s a vaccine available, OPEC+ may be required to step up to deal with the supply glut due to the weakened demand.”

Prices

• West Texas Intermediate for October delivery gained 0.3% to $42.94 a barrel on the New York Mercantile Exchange as of 12:05 p.m. Singapore time after dropping 0.8% in the previous three sessions
• The September contract expired Thursday, falling 0.8% to end the session at $42.58
• Brent for October settlement rose 0.4% to $45.07 on the ICE Futures Europe exchange after falling 1% on Thursday
• The contract is up 0.6% this week
• Brent’s prompt spread — the difference between the prices of the front-month contract and that of the following month — was near the widest contango since May, signaling concerns about over-supply.

While US crude stockpiles fell last week, the outlook for consumption is gloomy. Exxon Mobil Corp’s Baton Rouge refinery in Louisiana is idling one of two fluid catalytic cracking units due to low demand, according to a person familiar with operations. The plant already idled one of three cokers earlier this month and poor margins may mean more US Gulf refiners reduce coker runs, taking less heavy crude in August and September, according to traders.

Other oil-market news:

• Russia is set to be the swing supplier for Atlantic Basin crude oil in September, potentially helping the region increase its exports, even as overall shipments slip for the rest of the zone.
• For the first time in more than 60 years, two storms are headed for the Gulf of Mexico and will almost certainly threaten oil and gas infrastructure.

© 2020 Bloomberg