Oil Set for Third Weekly Gain With Bearish Headwinds Mounting
(Bloomberg) — 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 1.3% 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 U.S. 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 U.S. 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.”
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 U.S. 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 U.S. Gulf refiners reduce coker runs, taking less heavy crude in August and September, according to traders.
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