Oil kept falling after its first weekly drop since late April as a fresh coronavirus outbreak in China and increases in cases elsewhere added to concern a second wave of infections will threaten a nascent economic recovery.
Futures in New York fell below $35 a barrel after losing 8.3% last week. Beijing closed the city’s largest fruit and vegetable supply center and locked down nearby housing districts over the weekend after dozens of people associated with the market tested positive for the virus. Florida, meanwhile, is among some US states that are still seeing sharp increases in cases.
The supply response to the virus continued, with Baker Hughes data showing active drilling rigs across the US falling for a 13th week to the lowest in more than a decade. On the demand side, Chinese official figures showed refinery runs in Asia’s largest economy rose last month on a year-on-year basis. OPEC and its allies will review the state of the market this week at an online meeting of the group’s technical committee on Wednesday.
Crude’s six-week rally came to a halt last week amid concerns the worst of the virus isn’t over yet and as the Federal Reserve warned the pandemic could inflict lasting damage on the American economy. Still, supply reductions from OPEC+ and the US have started to bring the market back into balance, suggesting that a repeat of April’s plunge below zero is unlikely.
“If we do see China get a setback like a second wave of infections, the fear is that the rest of the world will see another wave as well,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia. “Supply cuts have been aggressive but as we head toward $40 on Brent, we start potentially building more supply back on US shale.”
West Texas Intermediate crude for July settlement fell 3.8% to $34.90 a barrel on the New York Mercantile Exchange as of 12:58 p.m. in Singapore. It has lost almost 12% since closing at a three-month high on June 10.
Brent for August delivery declined 2.7% to $37.69 on the ICE Futures Europe exchange after dropping by 8.4% last week. The contract was 98 cents cheaper than November futures, compared with 87 cents on Friday, a market structure known as contango that signals over-supply.
The pace of recovery in prices is likely to slow as the steepest decline in supply and the fastest improvement in demand is probably behind the market, Barclays Plc said in a note Friday. The bank increased its 2020 average price estimates for both Brent and WTI by $4 a barrel to $41 and $37, respectively.
Chinese refineries ran 13.69 million barrels a day in May, according to Bloomberg calculations based on figures from the nation’s statistics bureau. That was 7.5% higher than in April and 8.2% more than a year earlier.