Oil dips lower on fears second virus wave could derail economy
Oil extended losses on signs that a second wave of the coronavirus could derail a nascent economic recovery.
Futures fell below $35 a barrel in New York, sinking in tandem with equity markets, after falling 8.3% last week. Beijing closed the city's largest fruit and vegetable supply center following a surge of virus cases, stirring fears of a resurgence just as the world's largest oil user was showing signs of improving demand.
"Fear has started sprouting again," said Bjornar Tonhaugen, head of oil markets at consultant Rystad Energy in Oslo. "Concerns that we may be seeing the beginning of a second wave of the pandemic are dominating trading floors."
Crude's six-week rally fizzled on Friday amid concerns the worst of the virus isn't yet over and as the U.S. Federal Reserve warned the pandemic could inflict lasting damage on the American economy. BP's announcement on Monday that it will write down the value of the business by the most in a decade reinforced the picture of an industry in turmoil.
West Texas Intermediate crude for July settlement fell 3% to $35.16 a barrel on the New York Mercantile Exchange at 10:12 a.m. It has lost more than 11% since closing at a three-month high on June 10. Brent for August delivery declined 1.6% to $38.11 a barrel on the ICE Futures Europe exchange after dropping 8.4% last week.
Still, there are signs that the physical oil market is tightening.
OPEC and its allies have agreed to maintain production cutbacks amounting to about 10% of global supply into next month, and will hold committee meetings on Wednesday and Thursday to assess their impact.
Saudi Arabia will deliver between 10% and 40% less crude than requested to seven refiners in Asia in July, according to refinery officials who asked not to be identified. Iraq, which has typically lagged in implementing its agreed cuts, instructed BP to reduce output by 10% at the country's biggest oilfield.
Activity at America's vast deposits, including shale, continues to slow, with drilling rigs falling to a 13th week to the lowest in more than a decade, data from Baker Hughes showed on Friday.
"The U.S. shale patch will be very important for global balances and will influence what Saudi and Russia do on the month-to-month extension of their deal," said Tamar Essner, director of energy and utilities at Nasdaq.
On the demand side, Chinese official figures showed refinery runs in Asia's largest economy rose last month on a year-on-year basis. Refineries processed 13.69 million barrels a day in May, according to Bloomberg calculations based on figures from the nation's statistics bureau. That was 7.5% higher than in April and 8.2% more than a year earlier.
