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By Andres Guerra Luz (Bloomberg) –Oil weakened as economies from the U.S. to Asia signaled a deepening demand fallout from the coronavirus pandemic.
China’s cooling oil consumption hurt prices for Iraqi crude, while derivatives that help value North Sea grades showed renewed weakness. In the U.S., jobless claims rose last week for the first time since March and in South Korea, data showed the nation’s economy sliding into recession with exports plummeting in the second quarter.
Increasing U.S. jobless claims “speaks to just how tough the situation still is out there in the labor market,” said John Kilduff, a partner at Again Capital LLC. At the same time, South Korea’s economic data presents “a pretty significant headwind for the petroleum complex. That is one of the larger consumers of petroleum in the world, so it’s a major economy that’s taking a significant hit still.”
Crude futures have been caught in a tight range over the past two months as reports of government stimulus and vaccine progress failed to overcome prospects for languishing demand amid a resurgent pandemic. Plus, the OPEC+ alliance is a little over a week away from unleashing crude back onto the market and in the U.S., inventories are already at the highest seasonal level in decades.
“We have a huge amount of oil around the world in inventory that’s going to have to be eaten through,” said Gene McGillian, vice president of market research at Tradition Energy. “We need to see constant signs that demand is picking up and things are returning to normal” for prices to move higher.
In the U.S., virus cases are continuing to surge. Meanwhile, government data this week showed gasoline demand edged lower with measures to contain the virus keeping drivers off the road. Coronavirus cases in the U.S. increased 1.8% in the past 24 hours and Florida posted record deaths among residents due to Covid-19 on Thursday.
The outlook for consumption isn’t much better in Europe, with Finnish refiner Neste Oyj predicting demand for oil products will remain “severely reduced” in the third quarter.
–With assistance from Low De Wei, Alex Longley, James Thornhill and Sharon Cho.
© 2020 Bloomberg L.P
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