Oil futures climbed on Friday, buoyed by positive results tied to a COVID-19 treatment, but U.S. prices ended lower for the week as a report from the International Energy Agency cautioned that weaker demand caused by the coronavirus pandemic will linger, even if the worst of the hit to economies has subsided.
The global oil market has “reached a sort of stasis,” with Brent crude-oil prices having stabilized around $40 a barrel for much of June and early July, “as oil majors try to align their output levels with the fragile pace of the economic recovery,” said Cailin Birch, global economist at The Economist Intelligence Unit.
‘Stronger growth in oil demand is needed to change this dynamic and drive sustained price growth.’
Cailin Birch, The Economist Intelligence Unit
“Stronger growth in oil demand is needed to change this dynamic and drive sustained price growth,” she told MarketWatch. “This is unlikely to happen until a coronavirus vaccine is widely available, which we only expect around end-2021.”
Still, Tyler Richey, co-editor of Sevens Report Research, said oil prices did get a boost after Gilead Sciences Inc. /zigman2/quotes/210293917/composite GILD -0.55% said clinical trial data show its antiviral drug remdesivir reduced the risk of death for coronavirus patients by 62%.
The news also provided support to the U.S. stock market. “Oil futures have been trading with a high degree of correlation to the equity markets this week as the resurgence in coronavirus cases is continuing to be offset by further hopes for a swift global economic recovery,” said Richey.
The IEA in a monthly report, however, raised its annual forecast for crude demand to 92.1 million barrels per day, up 400,000 barrels a day from its outlook last month, citing a smaller-than-expected second-quarter decline as lockdowns eased in many countries.
However, the Paris-based agency said that a resurgence of cases of COVID-19 could pose problems for oil demand going foward.
The monthly report said “the large, and in some countries, accelerating number of COVID-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside.”
There were more than 63,000 new cases of COVID-19 in the U.S. on Thursday, setting a fresh daily record, as cases and hospitalizations in California and Texas rose, The Wall Street Journal wrote .
Investors were also watching the relaunch of the Messla oil field and Sarir refinery in Libya, closed since January due to civil unrest in the country. Libya coming back on line could add more pressure to an energy market that has been attempting to find its footing amid the economic damage wrought by the coronavirus pandemic.
“A resumption of Libyan exports could potentially add another 900,000 [barrels per day] to the market by year-end,” said Edward Meir, analyst at ED&F Man Capital Markets, in a note.
August West Texas Intermediate crude rose 93 cents, or about 2.4%, to settle at $40.55 a barrel on the New York Mercantile Exchange, after sliding 3.1% on Thursday to hit the lowest level for a front-month contract since June 30, according to Dow Jones Market Data.
Global benchmark Brent oil for September added 89 cents, or 2.1%, at $43.24 a barrel on the ICE Futures Europe exchange, following a 2.2% drop a day earlier to its lowest finish since July 1.
For the week, WTI saw a 0.3% weekly decline, while Brent’s Friday gain led to a weekly increase of 1%, according to Dow Jones Market Data, based on the front-month contracts.
Some energy investors, however, have been encouraged by oil’s ability to rebound from the price lows hit back in April, even if the commodity appears to be stuck in a range of around $40 a barrel for the moment.
“The fact that we’re seeing rising support may indicate that the path higher is still looking more plausible but many downside risks still remain, including second waves and a messy end to an otherwise successful coordinated production cut.” wrote Craig Erlam, senior market analyst at Oanda, in a Friday research note. The Organization of the Petroleum Exporting Countries and their allies, a group collectively known as OPEC+, agreed to an output cut of 9.7 million barrels per day to the end of July.
The next monthly meetings for OPEC’s Joint Technical Committee, which provides a review of the oil market and makes recommendations to OPEC+, and the Joint Ministerial Monitoring Committee, which oversees compliance with output cuts, are scheduled for Tuesday and Wednesday, respectively. Neither are decision-making bodies, and OPEC+ doesn’t plan to officially meet until December.
Over in the U.S., which is not part of OPEC+, the market saw further signs of production declines. Baker Hughes /zigman2/quotes/205323712/composite BKR +3.08% on Friday reported that the number of active U.S. rigs drilling for oil edged down by 4 to 181 this week.
Back on Nymex, prices for petroleum products ended higher for the session. August gasoline rose 2.6% at $1.2831 a gallon, gaining 1.9% for the week, and August heating oil rose 1.4% to $1.2412 a gallon, for weekly rise of 0.8%. August natural gas settled at $1.805 per million British thermal units, up 1.5% for the session, and up 4.1% for the week.