WTI Drops Below $40 on Demand Worries

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Thursday's session lower, with the front-month West Texas Intermediate crude oil contract dropping more than 2.5% as weekly increase in U.S. unemployment filings and a historic plunge in gross domestic product for the second quarter underscore economic damages from the coronavirus pandemic.

At settlement, NYMEX WTI September futures dropped $1.35 to a one-month low $39.92 barrel (bbl) and the international benchmark Brent crude September contract declined 81 cents to $42.94 bbl.

NYMEX RBOB August futures slid 2.11 cents to finish at $1.2204 gallon, while next-month delivery September contract was at a near 3-cent discount to the August futures contract at $1.1908 gallon settlement. Front-month ULSD futures sagged 4.14 cents to $1.2119 gallon and the contract for September delivery settled with 0.84 cents premium.

Oil futures and equities came under selling pressure Thursday amid a one-two punch of the steepest drop in U.S. GDP figures ever on record and the second weekly increase in jobless claims. The U.S. Labor Department reported the number of first-time unemployment filings jumped to 1.434 million for the week ended July 25, slightly above the forecasts of 1.39 million and the prior week's reading of 1.416 million. Continued unemployment claims, the number of people receiving unemployment benefits for consecutive weeks, jumped to above 17 million in the week reviewed, meaning businesses stopped re-hiring those employees who got laid-off during the initial shutdown.

"The labor market has a long way to go to recover even with two strong months of job creation," said Chairman of the Board of Governors Federal Reserve Jerome Powell in his news conference Wednesday.

Meanwhile, the number of coronavirus infections in the U.S. rose to more than 4.4 million this week, bringing the death toll near 151,000, according to data compiled by Johns Hopkins University.

During the second quarter, U.S. GDP collapsed at an annual rate of 32.9%, the U..S Bureau of Economic Analysis reported. The figure was slightly better than the markets expected.

"The decline in second quarter GDP reflected the response to COVID-19, as 'stay-at-home' orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses," said BEA.

The economic recovery seen in early June seems to be slipping from sight. Index of consumer confidence fell to 92.6 this month from a revised 98.3 in June, well below market expectations. Mobility index data shows traffic volumes in the U.S. have fallen well below that of Germany and Italy, while having registered no incremental improvement since roughly mid-June. The Dallas Federal Reserve Mobility and Engagement index began trending lower in the past couple weeks after advancing sharply back in April-May.

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

Liubov Georges