Oil prices drop as US COVID-19 cases surge raise demand concerns

Marco Green
July 8, 2020

Oil prices cautiously rose in early trade on Tuesday with major producers sticking to supply cuts, but gains were capped as USA coronavirus cases surged, potentially hampering a recovery in fuel demand.

US West Texas Intermediate (WTI) crude futures fell 53 cents, or 1.3 per cent, to $40.10 a barrel, after a high of $40.79.

Brent crude futures declined by 44 cents, or 1.02 per cent, to $42.66, by 0935 GMT, after hitting a high of $43.19.

Amid rising numbers of coronavirus cases in 39 USA states, a Reuters tally showed that in the first four days of July alone, 15 states reported record increases in new COVID-19 infections with parties over the holiday weekend possibly leading to another spike.

Florida has re-introduced some limits on economic reopening to tackle the rise in COVID-19 cases.

While California and Texas, two of the most populous and economical states in the USA, are also reporting high infection rates as a percentage of COVID-19 tests conducted in the last week.

"The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices", said CMC Markets's Chief Market Strategist Michael McCarthy in Sydney in an email.

Other parts of the world, such as Australia, have also been hit by a new wave of infections. "The pace of U.S. demand recovery will not be as steep as expected".

The implied volatility for Brent crude LCOATMIV has dropped to the lowest since prices started collapsing in March as some in the market remain focused on tightening supplies as production by the Organization of the Petroleum Exporting Countries (OPEC) fell to its lowest in decades with Russian output dropped to near targeted cuts.

The market is still being supported by a bigger-than-expected drawdown in USA crude stockpiles reported last week and by record supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, AxiCorp strategist Stephen Innes said.

Other reports by Click Lancashire

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