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Oil declines with new virus resurgence in U.S. darkening demand outlook

Oil declines with new virus resurgence in U.S. darkening demand outlook
Business
Futures in New York fell 1.7 per cent to near $39 U.S. a barrel. With the coronavirus running rampant across southern and western America and many states pausing or reversing reopening measures, the outlook for energy demand in the world’s largest economy remains uncertain. Oil prices are also being put under pressure by the prospect of returning supply from Libya and a steadily rising dollar.

Though crude is heading for a 10 per cent gain this month and the market is in much better shape than a couple of months ago, global consumption is still a long way off pre-crisis levels. Gasoline demand in the U.S. is under threat again with the virus restraining public activity. Royal Dutch Shell Plc painted a bleak picture of the industry as it forecast billions of dollars of asset writedowns.

“We still believe it is difficult to justify significant upside in prices in the near term due to the high levels of inventory, continued weakness in refinery margins and the fear over a severe second wave of COVID-19,” said Warren Patterson, head of commodities strategy at ING Bank NV.

OPEC and its allies have successfully curbed production, and helped the market toward some balance. But returning production from Libya and the U.S. could partially throw that into disarray.

Tribes in Libya’s east backed the restart of oil output, and the state energy company said negotiations could lead to a resumption of exports from the war-battered OPEC member. In America, ConocoPhillips said Tuesday that it expects to restore some curtailed production in Alaska and other states next month.

Still, in a bright spot for the oil market, China’s recovery is continuing with manufacturing data for June beating estimates, pointing to stronger demand from the world’s largest consumer.

“The worst is behind us,” Amin Nasser, chief executive officer of Saudi Aramco, said in an interview with consultant IHS Markit. “I’m very optimistic about the second half of this year. We see it in China today, it’s almost at 90 per cent.”
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