Oil Drops Toward $62 Amid Resurgent Virus, Retreat in Equities - Bloomberg

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Oil fell amid concern a resurgent virus will hurt demand in some economies, and after data showed a slight build in U.S. inventories.

West Texas Intermediate retreated 0.4% following a decline of more than 1% on Tuesday. The renewed spread of Covid-19 in countries such as India is casting a pall over the global economic rebound, even as signs of an improvement in energy demand elsewhere continue to pile up. Crude’s drop on Wednesday came amid a continued sell-off in global equities as investors shunned risk.

After a scorching start to the year, oil has been volatile of late

Oil’s value has risen more than a quarter this year as vaccines are rolled out, paving the way for a relaxation of lockdowns, greater economic activity, and increased mobility. Against that backdrop, the Organization of Petroleum Exporting Countries and its allies plan to start easing deep supply cuts from May. But the dramatic flare-up in cases in India has started to undermine the narrative that there’ll be an uninterrupted rebound in global consumption.

“This recovery is not going to be even, and we’ll get these headwinds emerging from time to time,” said Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd. “But overall, we are still seeing a strong recovery in demand across the major regions.”

Prices
WTI for June delivery declined 0.7% to $62.24 a barrel on the New York Mercantile Exchange at 7:05 a.m. in London. Brent for June settlement was down 0.6% at $66.20 on the ICE Futures Europe exchange.

The American Petroleum Institute reported crude stockpiles rose 436,000 barrels last week, while gasoline supplies fell more than 1.6 million barrels, according to people familiar with the data. If confirmed by government figures Wednesday, that would be the first rise in oil inventories in four weeks.

In India, soaring new cases have forced the financial and political capitals to impose curbs on movement, with New Delhi mandating a six-day lockdown that started on Tuesday. With the situation in South Asia deteriorating, the World Health Organization warned cases are rising in all regions, except Europe.

In Japan, Tokyo and Osaka -- the two biggest and economically important cities -- will ask the government to declare a state of emergency to contain a surge in cases just three months before the start of the delayed Olympics.

See also: Oil Rout Could Lurk in May, Bloomberg Intelligence Warns

Still, there are optimistic forecasts. Vitol Group, the biggest independent oil trader, expects demand to come roaring back as the world emerges from the pandemic, and predicts a rally to $70 to $75 a barrel in the third quarter.

There are also positive signs in China. Among data points, congestion during morning rush hours in cities including Beijing was higher than average 2019 levels in the week to April 12, according to TomTom International BV.

Brent’s prompt timespread remains backwardated at 67 cents a barrel, up from 40 cents at the start of the month. That’s a bullish pattern, with near-term prices trading above those further out.

“Places like in India are going to see demand suffer as infections rise and restrictions increase,” said Hynes. “But I don’t expect that to halt the overall upward trend.”

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Oil Drops Toward $62 Amid Resurgent Virus, Retreat in Equities - Bloomberg

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