COVID-19 Second Wave Scare to Impact Oil Prices This Week

crude oil futures

By Adedapo Adesanya

Price of crude oil will likely decline this week as a possible second wave of coronavirus spread across Asia is spurring fresh lockdowns, which will only worsen demand and likely increase oversupply with more output expected from oil producers from next week.

Demand has been unstable for the past few weeks despite the Organisation of the Petroleum Exporting Countries (OPEC) and its allies having optimistic projections for world oil demand to recover during the second half of 2020 and into 2021.

Both the International Energy Agency (IEA) and the Energy Information Administration (EIA) anticipate global oil demand to increase in the months ahead as well.

In China, infections not involving people returning from overseas hit the highest number since early March, with a total of 57 domestic transmissions reported out of 61 new cases.

According to reports, in the northeast city of Liaoning province, there was a fifth straight day of new infections and Jilin province reported two new cases, its first since late May.

Hong Kong is also expected to announce further restrictions this week including a ban on restaurant dining and mandated face masks outdoors.

This aligns with other countries like Australia as authorities warned a six-week lockdown in parts of south-eastern Victoria state may last long after the country registered its highest daily increase in infections.

In Japan, the government said it would urge businesses to increase telecommuting and enhance other social distancing measures amid a rise in coronavirus cases among workers. A record surge in cases during the past week in Tokyo and other urban centres has experts worried the country faces a second wave.

Last week, prices were pressured by escalating tensions between the United States and China but turned higher after a Euro Zone report lifted market sentiment. Euro Zone business activity grew in July for the first time since the coronavirus pandemic hit.

The reports showed the economy improved from June, but they came in lower than the forecast, which suggested the economic recovery may be slower than previously expected, which was not able to sustain the gains.

On the US-China front, tension may continue well into this week after China retaliated a US -closure of its consulate by ordering a counter-closure. The market will be on alert to the next line of action that might be taken by either side.

Still, Brent is on track for a fourth straight monthly gain in July while the US West Texas Intermediate (WTI) is set to rise for a third month due to the supply cuts from OPEC+ which has served its purpose to prop up prices.

However, investors are also watching for any impact from storm Hanna which battered the Texas coast over the weekend, threatening heavy rains in Texas and Mexico. Oil and gas producers and refiners said that they did not expect the storm to affect operations.

As at the time of this report, Brent crude was down by 28 cents or 0.67 per cent to $43.05 a barrel, while the WTI crude was at $41.04 a barrel, down by 25 cents or 0.61 per cent.

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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