Weekly Recap: WTI Drops on U.S. Covid Concerns, Outlook for August Remains Weak
WTI crude oil contract for September delivery declined by 2.6% this week to close at US$40.27 on Friday. A surge in Covid-19 cases in the U.S. and a weak outlook for the global economy, coupled with the growing strain in diplomatic relations between the U.S. and China contributed to the WTI price drop, and offset any upward pressure on prices from a continued weakening of the U.S. dollar and a significant decrease in the country’s crude oil inventories.
The near-month contract for Brent crude remained relatively stable again this week to close at US$43.30, approximately 0.1% lower than the previous week. However, despite remaining range-bound over the past three weeks, oil prices did record a month-on-month gain, with WTI futures up around 2.6% in July and Brent futures rising by 5.2%.
Global coronavirus cases hit 16 million this week, with the U.S. recording nearly 1.8 million new cases in July. The global economy may shrink by as much as 6.5% this year as a result of the pandemic, according to a poll of 500 economists conducted by Reuters.
The geopolitical strain between the U.S. and China continued to worsen this week amid ongoing tensions between the two countries based on accusations of espionage, human rights violations, and the U.S. declaring China’s claim to territories in the South China Sea illegal. The two countries had ordered the closure of each other’s consulates in Houston and Chengdu last week. The U.S. recently announced that it will ban the use of various Chinese apps such as Tik Tok, on account of concerns that they compromise user data and privacy.
The U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report released this week showed that U.S. crude inventories declined by 10.6 million barrels (MMbbls) in the week ended July 24th.
Prices are expected to weaken in August as OPEC and its allies start to ease production cuts this month, and global oil demand comes under pressure from the continuing Covid-19 crisis.