Oil Futures Fade

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Heading into mid-morning trade Friday, nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange slipped lower amid pressure from a resurgent U.S. dollar and weaker-than-expected readings on economic activity in Eurozone, indicating post-lockdown recovery might be faltering amid renewed quarantine restrictions and pullback in business reopenings.

Eurozone's boost in economic activity showed first signs of wearing off in August, with service sectors across the region's largest economies leading the renewed weakness. In France, the PMI reading for August declined 5.3 points from the previous month to 51.7, below an expected stronger showing of 57. For the Eurozone, preliminary PMI data still shows expansion in overall business activity by the summer's end, albeit at a much slower pace compared with previous months.

Interestingly, renewed weakness in EZ's data this month correlated closely with flare-ups in new infections around the region, fresh travel restrictions and business reclosures.

France, Germany and Spain all recorded their highest daily count of infections this week since their lockdowns were lifted in early June. "All epidemiological indicators are rising, and transmission of the virus is growing," the Ministry of Social Affairs and Health for the European Union said in a news release. It added that transmission is affecting "all age groups and more particularly young adults."

This week's worrying data raise doubts over prospects for economic and demand recovery in the second half of the year. The Organization of the Petroleum Exporting Countries released an internal report this week, calling for an alternative demand scenario that now includes the second wave of the virus hitting Europe, the United States and Asia. If the second wave is indeed realized, global oil demand would fall by 11.2 million barrels per day (bpd) this year, sending OECD commercial oil inventories in the fourth quarter to 233 million barrels (bbl) above the latest five-year average, the report showed. The best-case scenario called for global oil demand in 2020 to fall by 9.1 million bpd, 100,000 bpd more than in its previous forecast, before rising by 7 million bpd in 2021.

"Demand, in our view, is only likely to near pre-pandemic levels in 2021, and the rest of 2020 will be a muted struggle while facing the effects of the second wave," consultancy Rystad Energy said in a note.

Stocks on Wall Street still appear to be shrugging off those concerns, however, and traded shallowly mixed mid-morning Friday. The Dow Jones Industrial Average gained 40 points since the markets opened, registering a 5% advance this month so far, while the S&P 500 is priced 0.057% lower, while surging over 50% since late March.

The U.S. dollar index reversed higher in overnight activity to claw back 0.61% against the basket of foreign currencies at 93.335, once again pressuring the oil complex.

West Texas Intermediate futures for October delivery continued lower, down 66 cents to $42.17 per bbl, and spot-month international benchmark Brent crude declined 55 cents to trade near $44.34 bbl. ULSD September futures slumped lower 2.91 cents or 2.33% to $1.2175 gallon and the front-month RBOB September contract declined 1.59 cents to $1.2827 gallon.

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

Liubov Georges