US Economic Data Weakens Oil Prices

By Adedapo Adesanya

Oil prices fell on Thursday following weak US economic data as surging coronavirus infections around the world threatened to jeopardise a recovery in fuel demand just as major oil producers are set to raise output.

Brent crude futures lost 81 cents or 1.85 per cent to trade at $42.94 per barrel and the US West Texas Intermediate (WTI) crude futures lost 3.27 per cent or $1.35 to fall below $40 at $39.92 per barrel.

Both benchmark contracts rose on Wednesday after the US Energy Information Administration (EIA) reported the largest one-week fall in crude stocks since December.

However, the recent resurgence of the coronavirus continues to establish itself as a threat to the immediate future of the commodity.

Deaths from COVID-19 topped 150,000 in the United States on Wednesday, while Brazil, with the world’s second-worst outbreak, set daily records of confirmed cases and deaths. New infections in Australia also hit a record on Thursday.

Economic data released on Thursday added to the oil market’s worries. US gross domestic product (GDP) fell at an annualized rate of 33 per cent in the second quarter, confirming the coronavirus drove the biggest economic slump on record.

Jobless claims for the week increased for the second week straight. The uptick arrives after months of steady declines and suggests the US labour market may stabilise at a historically high level of unemployment until the virus threat subsides.

This is coming just as the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are set to step up output in August, adding about 1.5 million barrels per day to global supply.

This trend will be a hit to the demand rebound that the market has made so far after plunging earlier in the year.

Analysts noted that easing OPEC+ supply restrictions combined with the return of some US production may test the resilience of market sentiment in the coming weeks.

Investors were also worried after the US President, Mr Donald Trump, suggested in a tweet that the country may postpone the upcoming elections slated for November. This was interpreted as a major political uncertainty.

This happened as US states want to make postal voting easier due to public health concerns over the coronavirus pandemic, something Mr Trump noted could increase voting fraud.

However, under the US constitution, the US President does not have the authority to postpone the election himself. Any delay would have to be approved by congress.

But Mr Trump’s remarks were viewed as an attack on the integrity of the coming election, worrying investors.