Bunker Market this morning, 14th July, 2020
Oil prices slipped about 1% on Monday after global coronavirus cases rose by a record daily amount, fanning fears of renewed government lockdowns, and on growing U.S. and European tension with China.
Prices moved lower in post-settlement trade as California’s governor on Monday clamped new restrictions on businesses as coronavirus cases and hospitalizations soared.
“The California news puts the demand recovery question back on the table,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. Equities and other asset classes also moved lower after the California shutdown was announced.
The World Health Organization reported more than 230,000 new cases of coronavirus on Sunday, a one-day record. Much of the growth is in the Western Hemisphere, particularly the United States and Latin America.
In the United States, infections surged over the weekend as Florida reported an increase of more than 15,000 new cases in 24 hours, a record for any state. Numerous states have rolled back the loosening of restrictions on business operations and now require mask-wearing to slow the spread of the virus, which has killed nearly 140,000 people in the United States.
Brent LCOc1 futures fell 52 cents, or 1.2%, to settle at $42.72 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 lost 45 cents, or 1.1%, to settle at $40.10.
The market also remained on edge due to growing U.S. and European disputes with China. The European Union said it is preparing counter-measures on China in response to Beijing’s new security law on Hong Kong.
China announced sanctions against the United States on Monday after Washington penalized senior Chinese officials over the treatment of Uighur Muslims.
An Organization of the Petroleum Exporting Countries monitoring committee will meet on Tuesday and Wednesday and is expected to recommend levels for future supply cuts.
OPEC and allies, including Russia, are expected to ease production cuts to 7.7 million barrels per day, down from a record cut of 9.7 million bpd for May through June, as global oil demand has recovered.
OPEC+ will hold a committee meeting this week to assess the status of the oil market and decide on its next steps. For now, the group appears ready to begin unwinding the extraordinary production cuts, which could test the recent price rally. The historic cuts of 9.7 million barrels per day (mb/d) that OPEC+ implemented after the pandemic-related crash was always intended to be temporary. Initially, the cuts were set to expire at the end of June and begin tapering at the start of July; the group agreed to extend that first phase by a month.
As of now, the cuts are slated to expire at the end of July, reducing the cuts from 9.7 mb/d to 7.7 mb/d. Various press reports have suggested that the group is ready to let those cuts taper as scheduled, rather than push for another extension.
Russia intends to rachet up production in August, and OPEC+ delegates are “leaning towards” relaxing the cuts, according to a report from Bloomberg. The Wall Street Journal reported a similar angle, adding that OPEC+ producers are reluctant to continue to shoulder the burden of propping up prices while non-OPEC producers around the world bring their own production back online. “If OPEC clings to restraining production to keep up prices, I think it’s suicidal,” a source familiar with Saudi strategy told the WSJ. “There’s going to be a scramble for market share, and the trick is how the low-cost producers assert themselves without crashing the oil price.”
Keeping 9.7 mb/d off of the market helped engineer a price rally to $40 per barrel and create an atmosphere of stability. The big question now is how the market will react to an easing of those cuts. “It has been all but a bumpy ride for oil during the last months and the OPEC+ deal on supply has been a pillar for the market,” Louise Dickson, oil market analyst at Rystad Energy, said in a statement. “The upcoming OPEC+ meeting this week is now expected, as planned, to make this pillar a bit weaker.”
Oil Future close 13th July, 2020
Brent crude: $ 42.72 (-0.52)/brl FM delivery Sep
Light crude (WTI): $ 40.10 (-0.45)/brl FM delivery Aug
Gasoil ARA; $ 368.50 (-1.25)/mton FM delivery Aug
NY Harbor Ulsd: $ 376.67 (-5.45)/mton FM delivery Aug
The Oil Market is trading down at GMT 05.31: Brent $ – 0.69, WTI $ –0.78
Expect Fuel Oil prices to decrease by 2 – 4 usd/mton today. MGO slightly down 1 – 2 usd/mton and NY Harbor Ulsd down 5 – 6 usd/mton.