Oil prices settled lower on Friday as new coronavirus cases spiked in the United States and China, and on growing concerns about rising US output ticking up while crude stockpiles sat at record highs. Brent crude futures settled at $40.91, falling 1 percenet on the week. US West Texas Intermediate (WTI) crude futures fell to $38.49, down 1.6 percent on the week.
Earlier gains, supported by optimism over rising road traffic boosting fuel demand, were erased in US trading, on fears that spiking COVID-19 infections in large gasoline-consuming US states could stall the demand recovery. Cases have risen sharply in California, Texas and Florida, the three most populous US states. Friday morning, Texas Governor Greg Abbott reversed the state’s reopening plan, ordering most bars to close due to the surge in cases.
The global economic outlook has also worsened or at best stayed about the same in the past month, most economists polled by Reuters said, and the recession under way is expected to be deeper than earlier predicted. The International Monetary Fund has also predicted a greater global recession than previously thought. Still, a Dallas Federal Reserve Bank survey of executives in the top US oil and gas producing region found more than half of oil executives, who cut production, expect to resume some output by the end of July.
A record crude supply cut by Opec and allies, has kept the oil market much stronger than in April, when Brent hit a 21-year low below $16 a barrel and US crude turned negative. Investors are waiting to see if the producers, known as Opec+, extend their record cut beyond July.
Asian spot LNG prices remained steady last week on a continued stream of spot supply, even though traders continued to cancel cargoes loading from the US due to poor economics. The average LNG price for August delivery into northeast Asia was estimated to be about $2.20 per million British thermal units (mmBtu), slightly lower than the previous week.
Buyers of LNG are expected to cancel 40 to 45 cargoes for August-loading from the United States, due to a slow recovery in Asian gas demand and record-high European gas stocks. Some sources said, however, that loading a cargo in August might make more sense compared with June and July, as there was a price contango between August and forward months, with low shipping rates.
US natural gas fell a more than 10 percent last week, nearing a 25-year low due to the ongoing demand destruction from the coronavirus, swelling stockpiles and a collapse in LNG exports earlier in the month. On its last day as the front-month, gas futures for July delivery rose slightly, to settle at $1.495 per mmBtu. On Thursday, the contract settled at its lowest since August 1995, following a bigger-than-expected weekly storage build.
As the front month contract moves to August, prices were flat at $1.54 per mmBtu. Futures spreads, meanwhile, surged to records as investors bet demand will rebound later this year as the pandemic wanes. Still, with ongoing government lockdowns keeping many businesses shut and US LNG exports down by half since the start of the year, stockpiles are filling fast, which will pressure prices further.
