WASHINGTON (DTN) -- At the beginning of a new trading week, oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shifted lower, with the U.S. benchmark trading below $40 per barrel (bbl) as the Organization of the Petroleum Exporting Countries and Russia-led allies are expected to ease supply cuts by 2 million barrels per day (bpd) next month on the back of gradual recovery in global oil demand even as the United States, the world's largest oil consumer, takes a hit from a record surge in coronavirus infections.
The OPEC+ Joint Ministerial Committee is expected to recommend easing production cuts to 7.7 million bpd from the current 9.7 million bpd beginning Aug. 1, with the group set to meet via web-conference on Wednesday. Overnight reports indicate Saudi Arabia and Russia will push the group to finally relax the cutbacks after restraining supplies for nearly three months as the coronavirus pandemic swept through major centers for global oil demand. In the U.S., however, the pandemic has taken a dangerous turn with a record surge in new infections, complicating producers' efforts to bring market into balance. U.S. new infections jumped by a record 62,000 cases on Sunday, with Florida, Texas and California continuing to lead the national surge. Houston Major Sylvester Turner called for a two-week shutdown of the city as Army personal set to arrive Monday to help fight the virus that continues to set record hospitalizations. Despite this backdrop, overnight comments from Russian Energy Minister Alexander Novak suggest the coalition should be able to increase production with demand elsewhere, particularly in eurozone and China, gradually returning back to pre-pandemic levels.
In line with this argument, the International Energy Agency revised higher its 2020 demand projections by 400,000 bpd to 92.5 million bpd, citing a faster-than-expected recovery in the countries part of the Organization of Economic Cooperation and Development bloc. The Paris-based agency now forecast global oil demand to decline 7.9 million bpd in the current year compared with their previous estimate of an 8.1 million bpd fall.
"The worst effects of the coronavirus on global oil demand have passed but will continue to echo as the market slowly recovers in the second half of 2020," the IEA said on Friday.
If OPEC+ decides to ease cuts beginning in August, this should not lead to a change in views on the market, with most assuming this scenario. However, continuing deeper cuts would likely signal that demand is in more trouble than previously thought.
In financial markets, global equities continued higher and the U.S. dollar was lower in pre-market activity Monday as investors braced for a hectic week full of economic data and second-quarter earnings. JPMorgan and Citigroup will kick-off a second quarter earnings season on Tuesday that is likely to confirm a large decline in corporate profits for S&P 500 companies. Bank of America and Morgan Stanley will report their second quarter earnings on Thursday. Also this week, U.S. retail sales for June will be released on Thursday and preliminary reading on July's consumer sentiment from University of Michigan on Friday. Both data points will give deeper insight into the state of U.S. economy as the country continues its battle with coronavirus.
In early trading, West Texas Intermediate August futures dropped back $0.79 to near $39.76 bbl and international benchmark Brent crude declined $0.75 to trade below $43 bbl. NYMEX ULSD August futures fell 1.97 cents to $1.2216 gallon and front-month RBOB futures slumped 3.15 cents or 2.5% to $1.2516 gallon.
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