(Bloomberg) — Oil squeezed out a gain for the second straight week but uncertainty around the U.S.-China trade deal and fears of a resurgent pandemic limited the price rally.
Crude futures in New York fell 0.5% Friday, but rose 1.9% for the week. The U.S. and China postponed talks planned for over the weekend that had been aimed at reviewing progress at the six-month mark of their phase-one trade agreement, according to people familiar with the matter. Meanwhile, a rebound in U.S. retail sales slowed sharply in July amid a surge in Covid-19 and still-high unemployment cooled the economic recovery.
“If China headlines come out and there’s a problem with the meeting that’s going to happen, you could see a push down to the support levels,” for crude futures, said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC.
Still, U.S. benchmark crude futures extended their rally to over 4% in the past two weeks, with American crude stockpiles declining after imports from Saudi Arabia dropped and gasoline consumption rising. Adding to support, some data points show bright spots in the economic outlook, with U.S. industrial production increasing for a third straight month in July.
But growing signs of a resurgence of the coronavirus has highlighted the patchy recovery in oil consumption. On Thursday, the International Energy Agency downgraded a majority of its demand forecasts for the next 18 months. Meanwhile, the pace of well reactivations in the U.S. has increased since July, according to Rystad Energy, potentially casting a further pall amid a stubborn supply overhang.
“There’s reasons to be optimistic,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures. But crude supplies are “one big spike away” from reversing the gradual recovery in prices “right back down.”
- West Texas Intermediate for September delivery edged 23 cents lower to settle at $42.01 a barrel.
- Brent for October settlement dipped 16 cents to end the session at $44.80 a barrel. The contract gained 0.9% for the week.
The 3-2-1 refining margin for combined gasoline and diesel against WTI, which provides a rough gauge of profitability for processing a barrel of crude, is trading at its lowest seasonal level in almost a decade. As the pandemic devastates air travel and depresses gasoline demand during what is usually the summer driving season, weakness in the margin signals the decreasing appeal for refiners to buy up more crude.
At the same time, prompt spreads for WTI and Brent futures both widened deeper into contango on Friday, signaling concerns of oversupply.
“With the cracks struggling, turnaround season looms large on the horizon,” Bob Yawger, director of the futures division at Mizuho Securities USA, said in a note. Refiners will “pull back on the run rate soon, but there is little incentive for them to run hard during winter because distillate storage is already very close to a 38-year high.”
Other oil-market news
- The U.S. seized four tankers carrying Iranian gasoline bound for Venezuela in an unprecedented move by the Trump administration that carries the potential to destabilize global oil shipments if Iran retaliates.
- The downfall of storied Singapore oil trader Lim Oon Kuin reached a new nadir Friday, with the founder of Hin Leong (Pte) Ltd. charged with abetment of forgery for the purpose of cheating, punishable by up to 10 years in prison.
- Rosneft PJSC returned to profit in the second quarter as cost cuts, lower taxes and foreign-exchange gains helped offset a historic slump in crude prices. However, the result may not be sufficient for the company to pay a dividend for the first half.
- Venezuela’s long-suffering oil industry is ramping up exports even as production continues its inexorable slide.
–With assistance from James Thornhill, Elizabeth Low and Alex Longley.
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