Oil prices dip as demand outlooks dim ahead of OPEC+ production surge

New York — Oil prices settled lower July 30 as weak US economic data put demand recovery outlooks in doubt amid rising global supply forecasts.

NYMEX September WTI settled down $1.35 at $39.92/b and ICE September Brent was down 81 cents day on day at $42.94/b.

Weak US economic data weighed heavily on oil prices in early US trading.

US second quarter gross domestic product plunged 32.9%, showed the US Department of Commerce advance estimates, released July 30. This marks the largest-ever single-quarter GDP contraction in the US history. The US Department of Labor data also showed weekly initial unemployment claims climbed to 1.43 million in the week ended July 25, putting the advance unemployment rate at 11.8%.

Against this backdrop, US lawmakers remain at odds regarding a new round of stimulus spending, making it less likely that any deal will be reached in time to extend a $600 weekly federally-funded unemployment stipend that expires July 31.

"There are concerns that Washington seems to be far apart on a stimulus deal, that's going to be a killer for energy demand if they don't get that done," said Phil Flynn, Price Futures Group senior market analyst. "I think to turn this around we need to get some progress on stimulus deal. Based on the data this morning it's going to be needed, and need quickly."

NYMEX August RBOB settled 2.11 cents lower at $1.2204/gal, and August ULSD was down 4.14 cents day on day at $1.2119/gal.

Year-ahead WTI futures settled at a $2.63/b premium to front-month, opening the widest contango since June 1.

Even as demand outlooks dim, the market is bracing for a surge of new output as OPEC and its allies on August 1 will officially begin easing off their record production cuts.

After having slashed crude output by about 9.7 million b/d since May, the OPEC+ alliance is scheduled to relax its quotas by 2 million b/d from August through the rest of the year. The coalition appears eager to reclaim some of its lost market share, while not allowing the market to overtighten and unlock a wave of supplies from the US and other producers outside the group.

The front-month ICE WTI-Brent spread fell to minus $2.98/b, the lowest since May 18.

US crude production has shown signs of rebounding in recent weeks as a steep decline in drilling activity bottoms out. The number of active US oil rigs fell 4 to 202 during the week ended July 29, according to rig data provider Enervus, but they were still up 11 from a nadir of 191 during the week ended July 1. Over the same period, weekly US crude production has ticked up to 11.1 million b/d from 11 million b/d, according to the US Energy Information Administration data.