Brent futures were down 8 cents/b, or 0.18%, to $43.26/b by 3:15 am GMT, while WTI futures were down by 4 cents/b, or 0.1%, at $41.25/b. The drop of oil prices mirrored moves in broader financial markets in Asia amid concerns about escalating tensions between the world’s two biggest economies following the closures of consulates in Houston and Chengdu.
According to data from John Hopkins University, global COVID-19 case counts have continued to rise steadily and now stands at 16.2 million, with total deaths nearing 650,000, with the US and Brazil accounting for 41% of total confirmed cases. Major economies such as Japan and Australia, which had previously succeeded in curbing infection rates are once again battling to contain a fresh wave of infections.
However, while economic uncertainties continue to cloud the short term demand outlook, the global crude complex continues to be supported by the weakening US dollar, euphoria over positive vaccine results as well as the European and US fiscal stimulus packages. In fact, research from Stephen Innes, chief global markets analyst at AxiCorp, found a strong inverse relation between the US dollar and crude prices, as a weakening of the effective exchange rate of the US dollar of 1% has, on average, been accompanied by a rise in the Brent oil price of 2.0%. Weaker US dollar should translate in a counterbalance to any US inventory overhang, as investors will be on the reach for alternative investments to hedge the anticipated wave of US dollar weakness in the weeks and months to come.
On the supply side, OPEC+ cuts are due to be eased at the end of this week, prompting investor to brace for fresh deliveries in an already oversupplied market. U.S. oil rig count rose last week for the first week since March after producers added one rig, Baker Hughes data showed, a sign that U.S. oil production decline may have bottomed out, however at current price levels a quick recovery can be ruled out. Russian oil exports from its western ports are set to rise 36% in August from July, according to Reuters data. Saudi Arabia was the biggest supplier to China in June, delivering 2.16 million barrels per day, or nearly 17% of China’s record imports for the month.
Meanwhile, investors are also watching for any impact from storm Hanna, which battered the Texas coast over the weekend, threatening heavy rains in Texas and Mexico. Oil and gas producers and refiners said on Friday that they did not expect the storm to affect operations.