Crude Futures Range Bound; Demand Recovery Falters

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- After trading in narrow ranges for most of the session, West Texas Intermediate crude futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pushed higher late Monday afternoon, buoyed by a free fall in the U.S. dollar and prospects of a new massive stimulus bill set to be revealed by Senate Republicans at 4:30 p.m. EDT. RBOB futures, however, remained under pressure from a resurgent pandemic in parts of the United States and now the European Union.

At settlement, WTI September futures settled up 31 cents at $41.60 barrel (bbl) and ICE spot month Brent crude contract added 7 cents to $43.41 bbl. NYMEX ULSD August futures pared earlier gains to settle at $1.2541 gallon and the front-month RBOB contract settled 1.01 cents lower $1.2747 gallon.

The global COVID-19 case count accelerated sharply over the weekend and now stands at 16.2 million, with the U.S. and Brazil accounting for 41% of total confirmed cases, according to the latest data from John Hopkins University. In the U.S., Florida has now overtaken New York State in the number of confirmed cases as health officials warn of a massive death spike in the coming days and weeks. In Europe, Spain is now battling the second wave of infections, prompting officials in the United Kingdom to impose a 14-day quarantine for visitors returning from that country. Even China, which has so far been successful at managing the COVID spread, is now facing the most aggressive return of the virus since March, according to Reuters.

The worrisome headlines sparked new concerns over demand recovery as governments from Spain to China increasingly employ policy tools such as localized quarantines and travel restrictions.

Goldman Sachs on Monday said the recovery in demand for oil following pandemic lockdowns is slowing as COVID-19 infections continue to surge in the U.S. and elsewhere.

"Our Bottom-Up model further confirms the ongoing slowing of demand improvements, with a daily rate of demand gains of just 50 kb/d over the past three weeks, down 60% from the May-June pace of gains, bringing demand to c.10 mb/d below its pre-COVID path in mid-July," the investment bank said in a research report. "This slowdown is driven by a sharp stalling in the U.S. due to the resurgence of the virus, an only small increase in global jet demand and finally the headwinds to normalizing activity even in countries where the virus remains under control. After a 12.5 mb/d increase in demand levels from April to July, our Top-Down model leads us to forecast that the pace of monthly demand gains is set to slow to below 1 mb/d from August through December."

However, while economic uncertainties continue to cloud the demand outlook, the crude complex continues to be supported by a weakening U.S. dollar that has fallen to near a 2-year low 93.670 against the basket of foreign currencies. A weaker U.S. currency should be supportive for the oil complex as both typically exhibit negative correlation. Investors are also betting that the Federal Reserve will give a grim outlook for the U.S. economy when the board members convene for a 2-day meeting that ends on Wednesday. Fed officials have already warned this month that the economy faces a deeper downturn if the country doesn't take more effective measures to slow the spread of the virus.

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

Liubov Georges