DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Wednesday's session sharply lower. Declines were led by the front-month RBOB contract under pressure from a resurgence in new coronavirus cases in some parts of the United States triggering fears over potential new restrictions on personal mobility.

The governors of New York, New Jersey and Connecticut announced Wednesday they would begin requiring residents from states with virus hot spots to quarantine for two weeks upon arrival. Seven states, including California, Texas, North Carolina and South Carolina this week recorded new highs for coronavirus hospitalizations, while John Hopkins University reported the United States added a near record-high 34,700 new coronavirus cases on Tuesday. There have been only two other days that have surpassed that number: April 9 and April 24, when a record 36,400 cases were logged. National Institute of Allergy and Infectious Diseases Director Dr. Anthony Fauci said during testimony before Congress this week that the recent spike in coronavirus cases was "alarming," rekindling concerns that local and regional governments could force partial shutdown of the economy once again.

Aside from fears over resurging cases of the virus, the oil complex was hit with a wide set of bearish factors on Wednesday, starting with renewed threats by the Trump administration to impose $3.1 billion in tariffs on goods and services from the European Union as retaliation for a ruling from the World Trade Organization on airline protectionism. This potential trade dispute that could slow the pace of global economic recovery sent jitters through global financial markets, with Dow Jones Industrials finishing the volatile session down 712 points and S&P 500 closed with a 2.6% loss.

Further weighing on the oil complex, EIA data on Wednesday revealed commercial crude oil supplies for the week ended June 19 increased 1.4 million barrels (bbl) to a record-high 540.7 million bbl. The build was far larger than most analysts estimated, stoking fears of an oversupplied market at a time when demand is struggling to rebound after weeks of coronavirus quarantine. Data also showed crude production rebounded 500,000 barrels per day (bpd) in the most recent week from a multiyear low 10.5 million bpd, with offshore operators restarting platforms shut-in in advance of Tropical Storm Cristobal.

Distillate fuel supplied to the U.S. market eased 89,000 bpd for the reviewed week to 3.466 million bpd after improving for two weeks in a row from a 25-year low 2.718 million bpd. The rebound in distillate fuel demand has been weaker compared with motor gasoline with manufacturing activity still reported in contraction at multiyear low levels.

At settlement, West Texas Intermediate futures for August delivery dropped back $2.36 to $38.01 bbl before hitting an intrasession low $37.31 bbl, while international benchmark Brent crude declined $2.32 at $40.31 bbl. NYMEX ULSD July contract fell 5.22 cents to $1.1508 gallon and front-month RBOB contract plunged 10.30 cents to $1.1964 gallon, under pressure from potential new restrictions on personal mobility in the aftermath of COVID-19 spike in parts of the country.

Liubov Georges can be reached at liubov.georges@dtn.com

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