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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading nearly flat after clawing back earlier losses. The rebound is likely being fueled by profit-taking and position-squaring ahead of the weekend. A slight recovery in demand for risky assets after a steep sell-off on Thursday could also be contributing to the technical bounce.

At 09:19 GMT, July WTI crude oil futures are trading at $36.40, up $0.06 or +0.17%. This is up from a low of $34.48. August Brent crude oil is at $38.68, up $0.13 or +0.34%. The oil benchmarks are heading for their first weekly declines in seven, with Brent and U.S. crude both down more than around 12%.

Second Wave of COVID-19 Cases Raises Demand Concerns

Earlier in the day, oil futures slumped for a second consecutive trading session due to worries about weak global energy demand, which weighed on the currencies of oil producers and countries that rely on exporting commodities.

Traders blamed the early weakness on concerns over a surge in U.S. coronavirus cases this week that raised the prospect of a second wave of the COVID-19 outbreak hitting demand in the world’s top consumer of crude and fuel.

Reuters said the reality that the coronavirus pandemic may be far from over has brought the rally that raised oil off April lows to a shuddering halt, with infections in the United States alone passing 2 million.

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US Supply Issues Move to Forefront

U.S. crude and gasoline stockpiles grew last week, according to government data. U.S. crude oil inventories rose to a record 538.1 million barrels, as cheap imports from Saudi Arabia flowed into the country.

That gave rise to worries about a continuing supply-demand imbalance, as states including Texas and Arizona are seeing their coronavirus infections jump and are struggling to cope with a growing number of patients filling hospital beds.

In Houston, Lina Hidalgo, senior official for the county that includes the city at the heart of the U.S. oil industry, said “we may be approaching the precipice of a disaster”.

Daily Forecast

With the negatives beginning to pile up, today’s early rally is likely to be met with fresh shorting pressure. However, we don’t expect the markets to return to their April lows, but probably somewhere in the middle of the April low and the June high.

“Oil prices have rebounded sharply … helped by positive surprises in incoming data on demand and continued OPEC+ restraint,” Barclays said in a note.

“But we expect the pace of price recovery to slow down along with rebalancing,” it said.

For a look at all of today’s economic events, check out our economic calendar.

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