Oil futures finished higher Monday, buoyed by some recovery in energy demand, even with that recovery threatened by the possibility of another round of shutdowns as global cases of COVID-19 top 10 million.
“As global demand recovers, oil’s natural inclination is to go higher, since current prices are below the economic threshold for most producers,” Manish Raj, chief financial officer at Velandera Energy, told MarketWatch.
The market saw upbeat economic data over the weekend from China, the world’s biggest importer of crude. Industrial profits in China for May were up 6% from a year earlier, representing the first increase in 2020, official statistics released over the weekend showed.
There are also signs of further slowdowns in oil production. “To sum up the American producers’ standpoint, domestic rig count is down 73% from last year,” so oil has resumed its trend upward, said Raj.
Still, “the greatest spoiler last week was the recovery in U.S. oil production by 500,000 barrels a day,” as reported by the Energy Information Administration, he said. “Traders now fear that at least some of the shut in wells...could quickly spring back and spoil the recent recovery.”
West Texas Intermediate crude for August rose $1.21, or 3.1%, to settle at $39.70 a barrel on the New York Mercantile Exchange, following a 3.4% weekly decline for WTI put in on Friday.
Global benchmark Brent oil for August delivery climbed 69 cents, or 1.7%, at $41.71 a barrel on ICE Futures Europe, after notching a weekly decline of 2.8% on Friday, based on the most-active contract settlements. The August contract expires at the end of Tuesday’s session.
Worries about the need to re-implement efforts to prevent the pandemic’s spread, and the likelihood that the moves would slow the recovery in oil demand, have climbed along with cases of the illness.
“Demand remains the chief concern for the current market, particularly in the U.S.,” which accounts for nearly 20% of global crude and product demand, said Robbie Fraser, senior commodity analyst at Schneider Electric, in a daily note. U.S. demand has clearly rebounded from a record plunge in March/April, but “a continued rebound is likely to be challenged by the surge of COVID-19 cases in some states.”
The U.S. leads the world with a COVID-19 case tally of 2.55 million and death toll of 125,803, more than double the 1.34 million cases and 57,622 deaths recorded in Brazil. Within the U.S., infections have climbed in 32 states over the past 14 days, according to a New York Times tracker , with California, Texas and Florida leading the way.
Traders also weighed the potential impact from the bankruptcy filing of Chesapeake Energy Corp. /zigman2/quotes/224537584/composite CHK +3.76% on Sunday. The oil- and gas-price rout stoked by the coronavirus pandemic dealt a powerful blow to the U.S. pioneer in a unique oil extraction technique that would come to shift the balance of oil production in the world.
“Chesapeake was the undisputable master of U.S. shale gas,” wrote Magnus Nysveen, head of analysis at Rystad Energy, in a Monday report.
“The massive financial burden of investing first into the shale gas boom, then its failed attempt to grow a similar strong position on oil plays, have brought the giant to its knees,” he surmised.
Separately, Artem Abramov, head of shale research at Rystad, said that “a material portion of the U.S. light oil supply is now controlled by supermajors and large independents with access to the core acreage and strong balance sheets.” Most of these companies “can gradually adapt even if oil prices of $35-40 WTI stay around for longer.”
Back on Nymex, prices for petroleum products were higher along with oil, ahead of the July contract expiration at Tuesday’s settlement. July gasoline rose 2.7% to $1.1841 a gallon and July heating oil rose 2.6% to $1.1654 a gallon.
August natural gas settled at $1.709 per million British thermal units, up 10.7%.
“Natural gas markets are responding primarily to weather forecasts, as expectation of warmer days ahead provides a boost to prices that are in multiyear lows," said Raj. Futures prices settled on Thursday at $1.482, their lowest since August 1995, according to Dow Jones MarketData.