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August 15, 2020

Oil slips below $45 on demand doubts

Business

August 15, 2020

LONDON: Oil edged further below $45 a barrel on Friday, giving up much of this week’s gain, under pressure from doubts about demand recovery due to the COVID-19 pandemic and rising supply.

Two prominent forecasters, the International Energy Agency and the Organization of the Petroleum Exporting Countries, trimmed their 2020 oil demand forecasts this week. OPEC and its allies are increasing output this month.

“Pessimism about this year’s oil demand growth prospects is due to the weakening outlook in the coming months,” said Stephen Brennock of oil broker PVM. “To make matters worse, global oil supply is on the upswing.”

Brent crude LCOc1 was 17 cents, or 0.4 percent, lower at $44.79 by 1345 GMT, but still heading for a rise of 0.3 percent this week. US West Texas Intermediate CLc1 was down 19 cents, or 0.5 percent, at $42.05.

“Although both contracts continue to consolidate at the upper end of their two-month trading ranges, they lack the momentum to stage meaningful rallies at this stage,” said Jeffrey Halley of brokerage OANDA.

Prices had been bolstered this week by US government data showing crude oil, gasoline and distillate inventories all fell last week as refiners ramped up production and demand for oil products rose.

Oil has recovered from lows touched in April, when WTI briefly turned negative. Still, a rise in the number of novel coronavirus infections has limited gains. India reported another record daily rise in cases on Thursday.

OPEC and allies including Russia, a group known as OPEC+, have cut output since May by around 10 percent of pre-pandemic global demand to support the market. The deal calls for an increase in output this month as demand recovers. An OPEC+ panel meets on Wednesday to review the market and is not expected to tweak the agreement.

The EIA report showed gasoline stockpiles fell by 722,000 barrels last week, while distillate supplies declined by 2.32 million barrels.

Stockpiles at Cushing are hovering at just over 53 million barrels, the highest since May.

“The refiners are stepping it up again, almost surprisingly, because the gasoline demand hasn’t been that great,” said John Kilduff, a partner at Again Capital LLC.

Demand is picking up now for gasoline but remains “lackluster,” he said. There are still lingering concerns over a meaningful consumption recovery.

India’s oil-product demand was down 12% compared to a year earlier in July, as the nation continues to grapple with the virus, while Japan’s gasoline demand is showing renewed signs of weakening.

“Crude oil demand should move on an upward trajectory into 2020,” Bart Melek, head of global commodity strategy at TD Securities, said in a note, as a potential trillion dollars worth of stimulus and the prospects of a vaccine for Covid-19 aid demand recovery.

“This, along with OPEC+ supply discipline and U.S. shale oil industry weakness suggests that the existing inventory overhang should erode materially over the next four months and beyond.”