Oil falls on fears over rising virus cases worldwide
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[June 22, 2020] By
Bozorgmehr Sharafedin
LONDON (Reuters) - Oil prices fell on
Monday as concern grew that a record rise in global coronavirus
infections could stall recovery in fuel demand, outweighing tighter
supplies from major producers.
Brent crude <LCOc1> was down 24 cents, or 0.6%, at $41.95 a barrel by
1141 GMT. The West Texas Intermediate (WTI) crude contract for August
<CLc2>, which became the day’s more active contract, fell 25 cents, or
0.6%, to $39.58.
South Korea on Monday said for the first time that it was in the midst
of a second wave of the coronavirus. The World Health Organization
reported a record rise in global cases on Sunday, with the biggest
increase coming from North and South America.
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"Infections are rising in key markets around the world and there are
valid concerns that the world is in for a prolonged period of dealing
with its consequences," said Rystad Energy’s head of oil markets Bjornar
Tonhaugen.
After weeks of rising, prices of physical oil have begun to ease as the
rally succumbs to the reality of poor refinery margins and brimming
inventories, traders and analysts say.
Both Brent and U.S. contracts rose about 9% last week, supported by a
recovery in fuel demand as nations resume economic activity after easing
lockdowns.
Bank of America (BofA) Global Research has lifted its oil price forecast
for this year and next as demand recovers while the OPEC+ output cut
deal curtails supply and producers reduce capital expenditure.
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An oil pump is seen just after sunset outside Saint-Fiacre, near
Paris, France September 17, 2019. REUTERS/Christian Hartmann
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The bank now sees Brent averaging $43.70 a barrel in 2020, up from a previous
estimate of $37. For 2021 and 2022, the bank forecasts average prices of $50 and
$55 a barrel respectively.
"As we head into next year, we believe transportation demand could recover at a
faster rate than we initially anticipated," the bank said.
Signalling a recovery in global markets and tighter supplies, Brent has moved
into backwardation, where oil for immediate delivery costs more than supply
later. <LCOc1-LCOc2>
The Organization of the Petroleum Exporting Countries and allies such as Russia,
a group known as OPEC+, has yet to decide whether to extend a record supply cut
of 9.7 million barrels per day (bpd) into a fourth month, so it runs to the end
of August.
Russia said that $40 to $50 a barrel is a fair price.
(Reporting by Bozorgmehr Sharafedin in London; Additional reporting by Florence
Tan in Singapore; Editing by David Goodman and Edmund Blair)
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