Crude oil futures lower on demand recovery concerns

Singapore — 0250 GMT: Crude oil futures were slightly lower during mid-morning trade in Asia July 27 as concerns over recovery in oil demand resurfaced amid a resurgence in the number of COVID-19 cases worldwide.

At 11:15 am Singapore time (0315 GMT), ICE Brent September crude futures was down 8 cents/b (0.18%) from the July 24 settle to $43.26/b, while the NYMEX September light sweet crude contract was down by 4 cents/b (0.1%) at $41.25/b.

"Crude has been overdue for a correction because the concerns over oil demand revival globally is quite real," Vandana Hari, founder and CEO of oil consultancy firm Vanda Insights said July 27.

Global COVID-19 case counts have continued to rise steadily and now stands at 16.2 million, with total deaths nearing 650,000, with the US and Brazil accounting for 41% of total confirmed cases, latest data from John Hopkins University showed.

Worldwide daily infections remained high even as it retreated slightly from a record high three-day rolling average of 281,500 cases to settle at 255,000 on July 25. However, major economies such as Japan and Australia, which had previously succeeded in curbing infection rates are once again battling to contain a fresh wave of infections.

However, while economic uncertainties continue to cloud the short term demand outlook, the global crude complex continues to be supported by the weakening US dollar, euphoria over positive vaccine results as well as the European and US fiscal stimulus packages.

"A weaker US dollar should continue to provide a healthy counterbalance to any US inventory overhang as investors will be on the reach for alternative investments to hedge the anticipated wave of US dollar weakness in the weeks and months to come," Stephen Innes, chief global markets analyst at AxiCorp, said in a July 27 note.

He added that there was a strong inverse relation between the US dollar and crude prices, and that a simple regression equation shows that "a weakening of the effective exchange rate of the US dollar of 1% has, on average, been accompanied by a rise in the Brent oil price of 2.0%."

Meanwhile, the US government is expected to finalize details on the trillion-dollar coronavirus relief package this week before further negotiations are expected prior to congressional approval.

"Crude has to some extent been carried on the sustained risk appetite. Watch out for what comes out today in the relief package, that might reignite the risk appetite in the stock market, which will carry crude up in the next few weeks," Vanda Insights' Hari added.