Oil rises further from 3-week lows, but headwinds loom amid pandemic

TOKYO (Reuters) – Oil prices recovered further ground on Friday, after touching three-week lows in the previous session, responding to a record decline in U.S. growth as the coronavirus ravaged the world’s biggest economy and oil consumer.

Brent crude was up by 14 cents, or 0.3%, at $43.08 a barrel by 0358 GMT. On Thursday, Brent closed down 1.9% but had recovered much of the ground lost from the lowest level since July 10.

U.S. crude gained 21 cents, or 0.5%, to $40.13 after dropping 3.3% the previous session, again recovering from lows not seen since July 10.

That leaves Brent on track for a fourth month of gains, while U.S. crude is heading for a third consecutive month of increases, as the contracts have recovered from the depths reached in April when much of the world was in lockdown.

But as a second wave of infections rages around the world, the threat to oil demand is becoming apparent.

“The equilibrium price may be lower,” said Michael McCarthy, chief strategist at CMC Markets. “Now that we have dealt with the issues around the OPEC+ grouping, we know what’s happening there, the key issue for oil markets is demand destruction.”

OPEC+, a grouping of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively plan to increase production from Saturday, adding about 1.5 million barrels per day to global supply.

Globally, the economic outlook has dimmed again, with increasing coronavirus infections raising the risk of renewed lockdowns and threatening any rebound, according to Reuters polls of over 500 economists globally.

That was underlined by Thursday’s news that U.S. gross domestic product collapsed at a 32.9% annualised rate, the deepest decline in output since records began in 1947.

In Germany, there was also a record decline in output, with Europe’s largest economy contracting by 10.1% quarter-on-quarter from April to June.