FRIDAY, March 29, 2024
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Oil dips in wake of renewed concerns over virus surge

Oil dips in wake of renewed concerns over virus surge

Oil fell as growing concerns over another wave of the coronavirus pandemic weighs on the outlook for demand.

Futures dropped as much as 1.5% in New York on Friday and are set for a nearly 3% weekly decline. The U.K. added London to its watch list of potential pandemic hot spots, compounding worries Europe may face tighter restrictions as cases surge across the continent. At the same time, the market is contending with returning supply. Oil traders have reported a sharp increase in Iraqi exports for next month, while output from Libya has shown signs of rising this week.

The spreading coronavirus "is really the key weight on this market," said John Kilduff, a partner at Again Capital LLC. With flare-ups in Europe and parts of the U.S., "none of it's good for the oil market and the demand outlook."

Still, oil's weekly loss has been stemmed by the prospect of resuming stimulus talks in the U.S. and a more optimistic demand view from some analysts. Goldman Sachs Group Inc. said oil consumption is currently just above 93 million barrels a day and may rise 1.8 million a day to the end of the year. That said, a virus surge in the U.K. and France is deepening short-term risks.

"This month has not been kind to the oil market," said PVM Oil Associates analyst Stephen Brennock. "Economic growth anxieties are likely to persist, which in turn will keep oil prices under the cosh."

On the supply side, OPEC has allowed Iraq to pump more crude next month by giving it extra time to make up for breaching its quota this year. But the puzzle for the market is whether an increase in cargoes means Iraq could exceed its new limit of 3.6 million barrels a day.

In a sign of just how damaging the virus has been to oil demand, the industry's largest tankers next year will earn 8% less than they were anticipating back in May, according to a survey of shipping analysts by Bloomberg. That comes as nations including Saudi Arabia and Russia have drastically scaled back output, draining the hoard at sea and diminishing the flow of cargoes.

There have also been market signals of growing weakness in the global Brent benchmark this week. On Thursday, the crude traded at its smallest premium to U.S. WTI since May. It's also at its weakest to the Middle Eastern Dubai benchmark in four months.

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