Oil prices fall as demand fears outweigh tighter supply, Bonny Light gains 2.75%

Oil prices weakened on Monday over worries that a record increase in coronavirus cases globally might halt a rally in fuel demand, outweighing tighter supplies from major oil-producing countries.

Brent crude slid by 10 cents or 0.2% to $42.04 per barrel at 07:55 West Africa Time while U.S. West Texas Intermediate (WTI) went down by 11 cents or 0.3% per to $39.72 per barrel.

Nigeria’s Bonny Light had appreciated by $1.12 or 2.75% to $41.80 a barrel at the last session while Qua Iboe, another major national grade, climbed higher by $1.61 or 3.97% to $42.12.

Brent and WTI advanced by nearly 9% last week, with the former flipping to backwardation, a situation whereby the spot or cash price of a commodity is higher than the forward price.

“The market has entered a slight backwardation up to October. It times in with some of our estimates that by around November, the market could get really tight.

“I find it more difficult for oil to move higher at this point, especially with the growing concern about second-wave contagion,” Howie Lee, an economist at Singapore’s OCBC Bank, told Reuters.

Read also: Oil prices climb on output cut, hopes of demand recovery, as Bonny Light now $40.68

The number of operating oil and gas rigs crumbled to a record low last week in Canada and the U.S., even as higher oil prices impel a couple of producers to start drilling again.

The OPEC+ group, comprising the Organisation for the Petroleum Exporting Countries and its allies, including Russia, is yet to decide whether to sustain a record supply cut of 9.7 million barrels per day for a fourth month in August.

Iraq and Kazakhstan, nevertheless, vowed to comply better with output cuts during an OPEC+ panel meeting that held Thursday.

Oil prices have similarly received a boost from a recovery in fuel demand worldwide after a collapse between April and May during coronavirus lockdowns, as countries around the world resume economic activities.

Yet, the World Health Organisation reported a surge in global cases on Sunday, with the highest increase seen in North and South America.

“The potential economic damage of a new round of COVID-19 countermeasures will likely contain any investor enthusiasm,” said Michael McCarthy, chief market strategist at CMC Markets.

Spikes in cases in some regions including Beijing, the Chinese capital, and Victoria, Australia’s second-most populous state, have triggered curbs on movement to contain spread.

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