Oil Slumps Lower in Friday Trade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Heading into early trade Friday, oil and product futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slumped lower, with both crude benchmarks on track for better than 2% losses this week as rising coronavirus infections and fatality rates in the United States weigh on the outlook for fuel demand recovery while crude supplies from war-torn Libya seen returning back to the global market as early as next week.

The International Energy Agency revised higher its forecast for global oil demand outlook in 2020 by 400,000 barrels per day (bpd) to 92.1 million bpd, citing faster-than-expected rebound from countries part of Organization of Economic Cooperation and Development. The Paris-based agency, however, cautions the demand outlook is now skewed to the downside as the pandemic intensified in the United States and other centers for global oil consumption.

"... strong growth of new COVID-19 cases that has seen the re-imposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook. Only time will tell if the economic impact will be serious," said IEA in its commentary to the report.

Meanwhile, the agency expects global demand to decline by 5.1 million bpd in the second half of this year, a notable improvement from a 10.75 million bpd fall posted during the first half of the year. For 2021, average demand is still expected to be 2.6 million bpd below the 2019 levels, with jet fuel accounting for three-quarters of the deficit.

On the supply side, IEA estimates global supplies fell by 2.4 million bpd in June to a nine-year low 86.9 million bpd, with declines led by steep production cuts from OPEC+ members and market-driven reductions by North American producers. If those reduction stay in place, global supply could fall by 7.1 million bpd this year before seeing a modest recovery of 1.7 million bpd in 2021.

The latest headlines out of Libya suggest the war-torn country might finally be able to resume exports from Eastern Ports of Es-Sider and Zueitina after a six-month blockade ordered by Libyan National Army. The paramilitary forces led by General Haftar Khalifa had reportedly agreed to a deal sharing the oil-revenues with the United Nations recognized government in Tripoli and have now allowed exports to resume. There have been multiple attempts to resume Libya's production in the last six months or so, with output meantime plunging from the daily 1.3 million bpd to just 90,000 bpd in June.

Oil futures began shifting lower in afternoon trade Thursday after several hard-hit states reported upticks in COVID-related deaths weeks after massive spikes in new infections. The death toll is often seen as a lagging indicator of an outbreak since it can take several weeks to die after becoming sick. Investors are watching out for new indications on demand from COVID-19 hotspots, with mobility data suggesting consumers have begun to scale back driving and spending. U.S. coronavirus infections climbed by 60,500 new cases on Thursday, according to Centers of Disease Control, the highest single day increase of any country since the outbreak first began in early January.

In early trading, NYMEX West Texas Intermediate August futures dropped $0.58 to $39.03 per barrel (bbl) and international benchmark September Brent declined about $0.50 to $41.84 bbl. NYMEX ULSD futures fell 1.24 cents to near $1.2117 gallon and front-month RBOB futures retreated more than 1.5% from the two-week high settlement reached midweek, sliding 1.50 cents to $1.2352 gallon.

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

Liubov Georges