Oil Prices Drop Amid Weak Demand Outlook

By Adedapo Adesanya

Oil prices fell on Friday amid surging new coronavirus infections in the United States, which had market participants worried about the US oil demand recovery outlook.

This happened as there was a short trading session on Friday due to a holiday on Saturday, July 4, for the US Independence Day celebration.

The Brent crude, which rose at the previous session, shed 34 cents or 0.79 percent to trade at $42.80 per barrel, while the US West Texas Intermediate (WTI) crude dropped 33 cents or 0.81 percent to trade at $40.32 per barrel.

The US reported its highest level of new daily coronavirus cases yesterday, with more than 55,000, raising fears that a surge in infections will dent the gradual oil demand recovery in America, which consumes 20 percent of the world’s daily oil supply.

Despite this, oil prices still had a weekly gain as low supply from the Organisation of the Petroleum Exporting Countries (OPEC), encouraging economic data from the US and China, and a drop in crude inventories had supported prices earlier during the week.

Earlier this week, oil prices rallied after the Energy Information Administration (EIA) reported a draw of 7.2 million barrels in crude oil inventories in the United States in the week to June 26, down from an all-time high level of inventories reached the previous week.

A survey of OPEC’s crude oil production in June showed that the cartel’s output fell to a three-decade low of 22.69 million barrels per day (bpd), as Saudi Arabia fulfilled its promise to cut an additional 1 million barrels per day on top of its quota in the OPEC+ pact.

Both WTI and Brent futures at the previous session marked their highest settlements since March 6. This happened as the US added 4.8 million jobs in June and the unemployment rate fell for the second straight month to 11.1 percent, according to government data released on Thursday.

Although the market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, the continued disruption by the pandemic has threatened and derailed this recovery.