Oil prices were mixed on Monday, with Brent crude edging higher, supported by tighter supplies, while U.S. benchmark WTI futures dropped on concern that a spike in coronavirus cases could curb oil demand in the United States.
Brent crude rose 41 cents, or 1%, to $43.21 a barrel by 0634 GMT after a 4.3% gain last week, while U.S. West Texas Intermediate (WTI) crude was at $40.61, down 4 cents, or 0.1%, from its previous settlement on Thursday. U.S. markets were closed on Friday to mark the country’s July 4 holiday.
With coronavirus infections rising in 39 U.S. states, a Reuters tally showed that in the first four days of July, 15 of them reported record increases in confirmed COVID-19 cases.
“There will be some kind of decline in demand if cases were to increase as people will stay at home,” said Howie Lee, an economist at Singapore’s OCBC bank. “The pace of U.S. demand recovery will not be as steep as expected.”
Analysts at ING bank said data for several cities in affected states for now showed no significant reduction in road traffic week-on-week.
“We will get a better idea of what impact tighter restrictions in several states have had on gasoline demand with the EIA (Energy Information Administration) report this week,” ING said in a note.
The implied volatility for Brent crude has dropped to the lowest since prices started collapsing in March as some in the market remain focused on tightening supplies as production by the Organization of the Petroleum Exporting Countries (OPEC) fell to its lowest in decades, with Russian output also near targeted cuts.
OPEC and allies including Russia, collectively known as OPEC+, have pledged to slash production by a record 9.7 million barrels per day (bpd) for a third month in July. After July, the cuts are due to taper to 7.7 million bpd until December.
U.S. production, the world’s largest, is also falling. The number of operating U.S. oil and natural gas rigs fell to an all-time low for a ninth week, although the reductions have slowed as higher oil prices prompt some producers to start drilling again.