Oil Reverses Gains With U.S. States Reporting New Virus Cases

(Bloomberg) — Oil lost momentum on Friday amid signs the coronavirus pandemic is worsening in U.S. Sun Belt states.

Earlier in the day, crude futures rose above $40 a barrel in New York, extending a slow rise over the last month fueled by signals of a pickup in demand. Prices then slipped to $38.40 a barrel on reports that Arizona and Florida have recorded their biggest rise in new Covid-19 cases since the pandemic began. Apple Inc. said it could close some stores in those states.

Initially, oil prices were pushed up as two of the world’s biggest commodity trading houses, Vitol Group and Trafigura Group, said global oil demand is recovering at a rapid pace this month, while Saudi Energy Minister Prince Abdulaziz bin Salman also said he sees encouraging signs of a consumption recovery.

Timespreads are also showing strength. Brent crude’s prompt spread is rallying after settling in backwardation — a bullish indicator that points to tighter supply conditions — on Thursday for the first time since early March. WTI’s front-month spread also rose Friday.

OPEC’s deal with allies including Russia to curb production has also helped spur the price recovery. Even OPEC’s habitual quota cheat, Iraq, said it will implement its cuts in full this month. UBS Group AG said it expects an under-supplied market in the second half of this year and in 2021.

OPEC+ is “on the right track” to re-balance the global oil market but still has “a long way to go,” Prince Abdulaziz bin Salman said on Thursday at the group’s Joint Ministerial Monitoring Committee. He said the next two weeks will be “critical” for OPEC+ to demonstrate all countries are adhering to the cuts.

Meanwhile, U.S. oil production has a ways to go to regain the momentum it had earlier this year when output topped 13 million barrels a day. Data from the Energy Information Administration this week showed output declined for an eleventh straight week to just above 10 million barrels a day last week.

Though the outlook for crude has brightened in recent days, a potential resurgence of the virus is clouding the long-term outlook. Traffic in Beijing has plunged as authorities battle a fresh outbreak.

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