Abu Dhabi, UAEThursday 2 July 2020

Oil slides as coronavirus infections pass 10 million mark

US states such as Texas reimpose lockdowns as cases rise above 2.5 million across the country

A natural gas rig operated by Chesapeake is picture in Pennsylvania. The company became the latest casualty from the demand crunch caused by the coronavirus pandemic after it filed for bankruptcy on Sunday. REUTERS
A natural gas rig operated by Chesapeake is picture in Pennsylvania. The company became the latest casualty from the demand crunch caused by the coronavirus pandemic after it filed for bankruptcy on Sunday. REUTERS

Oil continued the slide experienced at the end of last week as markets showed concern about a renewed dampening of demand after novel coronavirus cases moved past 10 million globally.

Brent, the most widely traded crude commodity benchmark, was down 1.73 per cent at $40.31 per barrel at 12.56pm UAE time, while West Texas Intermediate, which tracks US crude grades, was down 1.35 per cent at $37.97 per barrel.

The benchmarks slid as the US, the world’s largest economy, reported a surge in Covid-19 cases, with the total number of infections rising to over 2.5 million.

The growing number of new infections in the US has prompted states such as Texas to reimpose lockdowns to contain the spread.

Apart from the US, China, where the virus originated, also imposed restrictions in the capital, Beijing. Tokyo also registered its highest daily count since early May, while Australia’s Victoria state reported a resurgence in infections.

"The US remains a particularly concerning hotspot, and as new infection numbers rise in certain areas, including the country’s fourth largest city, Houston, phased reopening is being halted and restrictions returning,” JBC Energy said in a note on Monday.

"Whilst these localised measures on their own are unlikely to see any major immediate impact on demand, they do highlight the significant risk to gasoline demand in the US going forward, as well as wider economic repercussions if major states are forced into lockdowns again, even if the political rhetoric is currently denying that another lockdown may be on the cards,” the consultancy said.

Oil prices, which rebounded in early May following an easing of lockdown restrictions as well as action by the Opec+ group of producers to curb supply, have given up some of their recent gains after Brent climbed to more than $43 per barrel on June 22.

Brent ended the previous week down marginally at $41.02 on Friday, while WTI fell 0.6 per cent, settling at $38.49 per barrel.

The struggling US shale sector faced another blow on Sunday, when Chesapeake Energy, a leading operator, filed for bankruptcy. The company, which took on a huge amount of debt to fuel its exploration drive, found itself unable to meet payment deadlines during the coronavirus lockdown.

The US shale sector, which is populated by thousands of independent oil firms, has found itself particularly vulnerable during the demand decline caused by the coronavirus pandemic. WTI fell to its lowest ever level in April, with prices falling below zero to -$40 per barrel ahead of the expiry of the May contract as concerns grew about storage capacity.

Chesapeake’s collapse could be viewed as "positive news” for the global glut in oil, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The shale-oil giant has partly been responsible for the rapid build-up in global inventories for years and had a negative impact on oil prices,” she said.

"Therefore, we may see a limited retreat in WTI, though the risk-off sentiment across the market should encourage a renewed test of the $37 per barrel support and push for a deeper correction towards the $35 mark."

Updated: June 29, 2020 03:08 PM

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