Oil prices bounce back from three-week lows, but economic headwinds loom

Andrew Cummings
July 31, 2020

Brent crude was up 31 cents, or 0.7%, at $43.25 a barrel by 0831 GMT.

On Tuesday, both U.S. and United Kingdom crude futures' prices ended the day broadly lower as USA lawmakers were wrangling over another set of trillion-dollar stimulus package, while worries over a rise in global pandemic outbreak had been denting demand outlook.

That leaves Brent on track for a fourth month of gains, while US crude is heading for a third consecutive month of increases, as the contracts have recovered from the depths reached in April when much of the world was in lockdown.

Even though experts agree that the likelihood is zero, US president Donald Trump on Thursday tweeting that the November presidential elections should be delayed to ensure safe voting during the Covid pandemic caused panic among traders and a corresponding loss in oil prices.

USA crude oil inventories fell by 10.6 million barrels last week to 526 million barrels, the Energy Information Administration said, in their largest drawdown since December.

"A relief of 6.8 million barrels could normally help prices rise even further, but concerns over a new supply glut coming from August are capping gains", Rystad Energy head of oil markets Bjornar Tonhaugen said. "This suggests that we will see a tighter market in the future, and if the economy turns around we will have trouble meeting demand".

The pandemic is keeping alive concerns about falling fuel demand causing an oversupplied market as record numbers of coronavirus infections are reported globally, including in the USA, the world's biggest consumer of oil.

Investors shift funds away from dollar to dollar-priced commodities due to their drop in price amid weaker USD.

Analysts' expectations in a Reuters poll were for an increase of 357,000 barrels.

Meanwhile, adding that the longer the stimulus talks would drag on, the more it would hinder market sentiment, a partner at Again Capital LLC in NY, John Kilduff said on Tuesday, "There's concern with the stimulus out of Washington, which is critical to the oil complex and to supporting demand, especially for gasoline".

The fall in crude stocks was likely a result of supply cuts, agreed in April by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, finally being realised.

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