Oil rises on signs of economic recovery, ignoring surging infections

Daniel Fowler
July 2, 2020

Despite efforts by the Organization of the Petroleum Exporting Countries and their allies including Russian Federation to reduce supplies, crude inventories in the United States, the world's largest oil producer and consumer, have hit all-time highs.

Brent crude futures for September fell 17 cents, or 0.2%, to $41.68 a barrel, paring Monday's 92-cent gain. Both contracts rose $1 earlier in the session.

Crude oil's ongoing rally is underpinned by better-than-expected China Purchasing Managers Index readings, as well as a new American Petroleum Institute (API) report that showed a higher-than-expected draw in crude oil inventories last week, according to Daily FX strategist Margaret Yang.

Official inventory data from the EIA is due out later on Wednesday.

"From a trader's perspective, there is always a concern when the data is too good; especially beneath the fog of the current Covid-19 headlines that suggest de-risking playbooks remain in play ahead of the U.S. long weekend said Stephen Innes, Chief Global Market Strategist at AxiCorp".

Improving global economic activity supported prices as well.

United States strikes an 'amazing deal' on remdesivir
He added that Britain had a "sufficient stock" of remdesivir for patients who need it, but didn't specify how much that was. In May, US regulators allowed the emergency use of the experimental drug that appears to help some patients recover faster.

Commercial crude oil inventories in the United States decreased by 7.2 million barrels in the week ending June 26th, the Energy Information Administration (EIA) announced on Wednesday.

Also supporting prices was a drop in output from the Organization of the Petroleum Exporting Countries (OPEC) to the cheapest in 2 full decades in June.

"Although there is still the danger of demand outages in view of increased new cases of COVID-19, OPEC+ seems to have the market under control at the moment", said Commerzbank analyst Eugen Weinberg.

OPEC produced an average of 22.62 million barrels per day (bpd) in June, a Reuters survey found, down 1.92 million bpd from May's revised figure.

Crude held on tankers fell below 150 million barrels by the end of June, down from more than 180 million barrels in late April, IHS Markit estimated.

Fuel demand around the world is recovering as lockdowns ease.

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