Crude oil prices decelerated on Tuesday, pulling back earlier gains recorded at the previous trading session on growing concerns that surging COVID-19 cases in the world’s biggest oil user, the United States, would limit the upside in energy demand.
U.S. West Texas Intermediate (WTI) lost about 0.66%, to trade at $40.46 a barrel at 6.11am local time after surging as high as $40.36 in its intra-day trading session. Brent crude also lost about 0.63%, to trade at $42.83, after hitting an intraday high of $43.19.
“The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,” CMC Market’s Chief Market Strategist Michael McCarthy said in a note to Reuters.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in an email to Nairametrics, explained the macros limiting the prospect of oil demand. He said:
“The faltering re-opening of the US States is also partially offset by the muscular approach by Saudi Arabia. They are seeking to enforce compliance with OPEC+ quotas – both are currently important in maintaining market balance and ultimately drawing down global inventories.
“It seems traders are getting more accustomed to minor retracements and rallies than expecting a significant price shift this week as a range trade mentality continues to resonate where Brent $40 per barrel does give the appearance of something of a floor.
“With the market torn between robust cyclical data and rising virus case counts in the Sun Belt, putting in significant headroom above $WTI 40 was also challenged by a possible resumption of US shale production as price move higher. While no less concerning is OPEC+ could roll back cuts in August.”
In addition, data from the American Petroleum Institute industry group scheduled to come out later today and the U.S. Energy Information Administration data planned to be out tomorrow, are expected to show a 100,000 barrel rise in crude oil stockpiles, six experts polled by Reuters estimated.