Oil slides from five-month high on cloudy demand outlook

Oil declined from a five-month high in New York with the US Federal Reserve and OPEC+ sounding caution on the demand recovery as many countries struggle to contain the coronavirus.

Futures fell 1 per cent toward $42 a barrel amid a broader rout in equities after minutes from the Fed said the pandemic would weigh heavily on economic activity, repeating its view that the recovery would depend on containment of the virus.

OPEC+ also warned at a meeting on Wednesday that the pace of the demand rebound was slower than expected and at risk from a prolonged second wave of the outbreak, while urging laggards to adhere to output pledges.

Oil has inched higher recently after a rally stalled in June but is struggling to push past $43 a barrel as surging infections raised doubts about a sustained recovery in consumption. Prices have also closely followed the dollar this month, with the US currency strengthening after the release of the Fed minutes, making commodities such as crude less attractive for investors.

“Prices are likely reacting to the bearish Fed minutes overnight, while the OPEC+ meeting was largely within expectations,” said Howie Lee, an economist at Oversea Chinese Banking Corp. in Singapore. Oil is “expected to stay at current levels going forward as the market is working its way through a huge supply glut,” he said.

Prices
– West Texas Intermediate for September delivery, which expires Thursday, fell 1 per cent to $42.49 a barrel on the New York Mercantile Exchange after adding 0.1 per cent on Wednesday to close at the highest level since March 5
– The more-active October contract fell 1 per cent to $42.70 at 11.40am Singapore time
– Brent for October settlement lost 0.8 per cent to $45.02 on the ICE Futures Europe exchange after falling 0.2 per cent in the previous session
– The six-month timespread was at a contango of $2.41 a barrel, compared with $1.77 at the end of July, signaling concerns about over-supply

A big focus of the OPEC+ meeting was ensuring nations that didn’t live up to their promises in previous months make amends in August and September. Nigeria, Iraq and other laggards were given until August 28 to come up with a detailed plan for their compensation cuts, according to a communique.

In a positive sign for the market, however, government data showed US crude stockpiles extended declines for a fourth straight week – the longest run this year – while gasoline inventories dropped for a second week.

Stockpiles at the storage hub of Cushing, Oklahoma, fell for the first time since June.