Ongoing concerns associated with the spikes in new coronavirus infections in many countries weighed heavily on trading activity on Monday, but bullish data from Asia and Europe was enough to offset the worries – at least temporarily – and cause crude prices to escalate.
Specifically, European Commission data showed that a recovery of economic sentiment in the euro zone intensified in June to 75.7 points compared to 67.5 in May; plus, in China, industrial profits rose for the first time in six months in May.
As a result, Brent (which is poised to end June with a third consecutive monthly gain) settled up 69 cents to $41.71 per barrel, while West Texas Intermediate settled up $1.21 to $39.70 per barrel.
Part of Brent’s success is due to the Organization of the Petroleum Exporting Countries (OPEC) and its allies cutting output in June by 1.25 million barrels per day (bpd) from May levels, thus contributing to a better balance of supply and demand, and Petro-Logistics pointed out in a note that, “Excluding Iran, Libya, and Venezuela, which are not part of the curtailment agreement, OPEC-10 supply remains about 1.55 million bpd away from full compliance.”
Still, the rising virus rates have led to questions of whether governments will reimpose lockdowns and cause more economic bedlam (and a corresponding drop in oil demand) – a notion that gained credence in the U.S. when California ordered bars to close on Sunday following similar moves in Texas and Florida.
JBC Energy said, “Whilst these localized measures on their own are unlikely to see any major immediate impact on demand, they do highlight the significant risk to gasoline demand.”
Given that U.S. fuel consumption dropped 2.3 percent Saturday from the same day the week prior, Bill O’Grady, chief market strategist at Confluence Investment Management LLC, was moved to remark that, “I wouldn’t be shocked to see us retest the low $30s….if you look at the demand for distillate, it’s terrible, and distillate is what drives the economy.”
But opportunities in the energy sector exist even in a pandemic, and that became evident on Monday when it was reported that China’s state-owned refining giants are in talks to form a joint purchasing group to buy crude, which has the potential to alter the balance of power between sellers and buyers in the oil market.
Additionally, while news media’s obsession with reporting virus spikes is undoubtedly stoking consumer fear in some quarters, advances in eradicating the disease continue: in fact, Monday represented a global milestone in that China’s military has received the green light to use a Covid-19 vaccine developed by its research unit and CanSino Biologics, after clinical trials proved it was safe and showed some efficacy.
Read More: Oil Climbs Again As Traders Wrestle With Ongoing Virus Fears
