Surge in COVID-19 Cases, Inventories Build to Impact Oil Prices This Week

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By Adedapo Adesanya

Oil prices marked another positive closing last week, pushed by indications of economic recovery in the world’s largest crude producer, the United States, amidst rising coronavirus cases and a fear of a weakening demand for the commodity.

The international benchmark, Brent Crude, settled at $43.14 per barrel, while the US West Texas Intermediate (WTI) crude finished at $40.65 per barrel last Friday ahead of the American Independence Day holiday over the weekend.

However, gains were capped and there was careful approach by traders ahead of a long holiday weekend as a resurgence in the US coronavirus infections created concerns that economic activity will weaken in coming weeks.

Last week, the US recorded a daily global record of more than 55,000 new coronavirus cases as infections rose in the vast majority of states, fanning concerns about demand for the crude oil, as many states mulled going back into a partial lockdown.

Also, prices were supported in the week by a drop in the US crude oil inventories as the Energy Information Administration (EIA) reported a decline of 7.2 million barrels in crude oil inventories in the week to June 26, down from an all-time high level of inventories reached the previous week.

Another pointer that helped the market last week was an estimate in the level of crude production by member states of the Organisation of the Petroleum Exporting Countries (OPEC).

In the week, the cartel recorded the lowest production numbers in 30 years in June as output fell to 22.7 million barrels per day, as Saudi Arabia fulfilled its promise to cut an additional one million barrels per day on top of its quota.

Apart from tightening supply, oil prices were also supported last week by optimistic economic news from the US and China.

In the United States, the economy regained 4.8 million jobs last month as shown in data released on Thursday, while in China, the manufacturing sector conditions continued to improve in June, as its services sector activity expanded at its fastest pace in a decade and business confidence improved to a three-year high.

Looking at this week, analysts note that a rise in the number of COVID-19 infections in the United States and the implementation of new restrictions and lockdowns and expectations of a high inventories forecast at 3 million barrels may depress prices.

As at the time of this report, Brent crude was trading up 1.7 percent at $43.54 per barrel, while the WTI crude was also up 0.74 percent to $40.95 per barrel.

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