Oil retreated from a five-week high on concern that relaxing virus lockdowns too early will lead to a resurgence in cases and derail a nascent recovery in energy demand.
Futures in New York followed equities lower, dropping 0.9% from the highest settlement since early April. Anthony Fauci, America’s top infectious disease official, said US states reopening too quickly could hurt an economic recovery. China’s return from restrictions suffered a setback after new cases emerged in Wuhan — the epicenter of the outbreak — prompting an order for the entire population of 11 million to be tested.
A fresh wave of virus cases would threaten a fragile recovery. US Energy Secretary Dan Brouillette said the country’s battered oil industry was on its way back, while the American Petroleum Institute reported a drop in stockpiles at the storage hub of Cushing, which could be the first decline since February.
Oil is down almost 60% this year after energy consumption collapsed as nations across the globe implemented lockdowns to stem the spread of the coronavirus pandemic. The US on Tuesday cut its forecasts for global petroleum demand this year and next, while consultancy IHS Markit doesn’t see the market recovering to pre-virus levels until the second half of 2021.
“The whole market is chasing its tail at the moment — we are in a range-trading, flip-flop market,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda. “For oil to make progress on the upside now, we need to see some solid evidence that demand is reappearing as economies reopen.”
The API reported that crude inventories at Cushing, Oklahoma, fell by 2.26 million barrels last week, according to people familiar with the data. If government figures due Wednesday confirm the decline, it would be the first draw at the delivery point for US futures since the week ending Feb. 28.
The oil market has staged a modest recovery since prices plunged below zero last month for the first time ever. Stockpile builds are slowing, there are signs of demand in the big Asian consumers of India and China, while in the US, gasoline consumption is increasing.
“We now have 23 states that are opening up their local economies, that represents roughly 40% of the gasoline demand in the US,” Energy Secretary Brouillette said in an interview with Bloomberg Television on Tuesday.