DTN Oil

WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the Friday session with solid losses underpinned by shaky recovery in the U.S. labor market and weaker-than-expected manufacturing data out of the Eurozone, indicating global fuel demand would likely remain muted in the second half of the year.

"Demand, in our view, is only likely to reach 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 released Friday. The second wave of infections looks increasingly likely now as countries like Germany, France and Spain post their highest daily case count since quarantine measures were first lifted three months ago.

"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 press release. It added that transmission is affecting "all age groups and more particularly young adults."

Eurozone's PMI data Friday showed economic recovery in the region slowed significantly in August with service sectors leading the declines. Traffic activity in Germany, France and the United Kingdom also stalled in the most recent weeks -- a trend that has so far been prevalent in the United States.

Domestically, the labor market once again took a turn for the worse last week with initial jobless claims climbing above 1 million after steadily declining for three weeks in a row. The unexpected jump in claims is a worrisome sign for the battered economy and fuel demand. Over 23 million Americans remain unemployed and the resurgent virus continues to weigh on businesses that managed to re-open.

Organization of the Petroleum Exporting Countries this week released an alternative market forecast for 2020, calling for a steeper drop in fuel consumption if the second wave of infections is realized. According to internal report seen by Reuters, the cartel estimates a fall of 11.2 million barrels per day (bpd) in global oil consumption instead of previously thought 9.1 million bpd.

Further weighing on the complex, the U.S. oil rig count rose for the first time in four weeks, climbing by 11 in the week ended Friday, according to data published by Baker Hughes. This marked the largest 1-week increase since the week ended Jan. 17 and lifted the rig count from a better-than-15-year low in the prior week.

At 183 rigs as of Friday, the number of rigs actively drilling for oil is the highest in seven weeks but still 571 below the same time in 2019, Baker Hughes data show.

The combined oil and gas rig count in the United States rose 10 to 254, 662 below a year ago.

The U.S. dollar index changed higher in afternoon trade Friday, gaining back 0.45% against the basket of foreign currencies at 93.200, once again pressuring the oil complex.

West Texas Intermediate futures for October delivery settled the session 48 cents lower at $42.34 barrel (bb)l and spot-month international benchmark Brent crude declined 55 cents to $44.35 bbl. ULSD September futures slumped 3.87 cents or 3% to $1.2080 gallon and front-month RBOB September contract declined 1.24 cents to $1.2841 gallon.

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

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