- Crude oil price is wavering today as investors react to falling oil rigs and rising coronavirus cases.
- The number of virus cases is rising in the United States, South Africa, Germany, and Brazil,
- Data from Baker Hughes showed that oil and gas rigs fell sharply in the previous week.
Crude oil price is wavering today as worries of a second coronavirus wave outweigh the falling US and Canadian oil rig count. Brent, the international benchmark, is up by 0.35% while West Texas Intermediate (WTI) is up by 0.20%. At the same time, the Bloomberg Commodities Index is up by 0.20%.
Second wave fears rise
Crude oil price, like all other commodities, is affected by demand and supply. Today, the demand for oil is in slow recovery after falling by the fastest pace in March and April. The recent decision by OPEC+ members to slash production has helped to limit the sell-off. As a result, the price has gained by more than 100% since May.
Now, the price is facing its biggest test as the number of coronavirus cases start to jump in key countries. In Germany, the most powerful country in Europe, the number of new cases reported in the past few days has continued to rise. More than 600 infections were confirmed on Sunday.
Worse, the country’s “R” rate has continued to rise. According to Robert Koch Institute, the rate rose to 2.88 during the weekend. This rate means that for every 100 new infections, 288 more will be infected.
Germany is not alone. In the United States, more than 30,000 infections were confirmed on Friday and Saturday. According to health officials, the number of hospitalisations in California rose by more than 3,500, the highest number on record. It was a 22% increase since May 29. Other states have seen rising cases partly due to recent protests. The number of cases has risen sharply in countries like South Africa, Brazil, and China.
This presents two challenges for crude oil price. First, rising cases mean that there could be more lockdowns in the affected countries. Indeed, Germany and China are implementing lockdowns in select places to halt the spread. As such, with widespread lockdowns, it means that demand could remain sluggish for longer than expected.
Second, it means that international travel will take longer than most analysts expected. That is because more countries will continue to place limits on foreign travellers, which will affect the demand for oil in the airline industry.
Crude oil rigs fall
On a positive note, the number of oil rigs in the United States and Canada is falling, which will provide more support for oil prices. On Friday, data from Baker Hughes showed that active rigs in the US dropped by 10 to 189. This is an important figure considering that the US had more than 600 active rigs in January.
In Canada, total rigs dropped by 4 to 17 while the number of active rigs internationally dropped by 110.
The reduction in rigs has happened as more companies go out of business. Shale companies like Whiting and Diamondback have filed for bankruptcy. At…