Crude lower as fresh coronavirus cases outweigh bullish US jobs report

Singapore — 0205 GMT: Crude oil futures were lower in midmorning trading in Asia July 3, after hitting a four-month high overnight on better-than-expected US labor market data, as concerns over rising COVID-19 cases continue to cap the upside.

At 10:05 am Singapore time (0205 GMT), ICE Brent September crude futures were down 23 cents/b (0.53%) from the July 2 settle at $42.91/b, while the NYMEX August light sweet crude contract was down by 24 cents/b (0.59%) at $40.41/b.

US non-farm payrolls added 4.8 million jobs in June, exceeding market expectations of a 3.2 million gain, and bringing the nationwide unemployment rate down to 11.1% from 13.3%, according to data released July 2 by the US Department of Labor. The improvements in the labor market was largely due to a sharp increase in employment in the leisure and hospitality sectors which benefited as states reopened and economic activities resumed.

"Markets responded positively to the US labor market release, which mirrored other data suggesting that the economy is recovering quicker than median expectations," ANZ analysts said in a note July 3.

However, sharply rising coronavirus cases continue to weigh heavily on market sentiment even as the US head toward the long Fourth of July weekend, traditionally one of the busiest driving periods of the year. Florida, the third most populous state, set a new daily record of over 10,000 new infections July 2, bringing its total confirmed cases to nearly 170,000, according to media reports.

The US registered over 55,000 new infections nationwide July 2, marking a second consecutive day when cases rose more than 50,000, and the largest single-day total since the start of the coronavirus outbreak, according to media reports.

"And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as COVID-19 cases rise remains the primary thorn in the oil bulls' side," said Stephen Innes, chief global markets analyst at AxiCorp, in a note July 3.

Beyond the US, a surge in infections post-lockdown plagued several other countries. Australia's second most populous state of Victoria reported 77 new cases on July 2, leading authorities to lock down more than 300,000 people in Melbourne suburbs to contain the situation. Meanwhile, Tokyo recorded 107 new cases on July 2, the highest the capital has seen since May 2, raising fears that Japan might yet declare another state of emergency, according to media reports.

On the supply front, OPEC+ continues to ensure a strict level of compliance among member countries to previously agreed oil production cuts, and requiring laggards to compensate for non-compliance. However, the current record production cuts of 9.7 million b/d is set to expire at the end of July.

"The market will have to confront the specter of rising OPEC supply in the near term. Russia's Energy Minister said the OPEC+ alliance hasn't made a decision on extending the deeper cuts past July, but warned that it should avoid repeated changes to the current plan," the ANZ analysts said.