Crude prices fall on weak European data, rise in novel coronavirus cases

Oil prices fell Aug. 21 as weak European economic recovery news teamed up with concerns about sluggish crude demand amid the ongoing coronavirus pandemic.

Crude prices were trading substantially more than $1/b lower in midday US trading, but finished closer to 50 cents down as the curtain came down on the week. Front-month NYMEX WTI shaved off 48 cents and settled at $42.34/b while ICE October Brent dropped 55 cents to $44.35/b.

Europe's manufacturing purchasing data hit a two-month low, according to figures released Aug. 21, although US manufacturing purchasing managers' index (PMI) data rose a bit. But the more positive US numbers were not enough to boost crude markets, said Edward Moya, senior market analyst at OANDA.

"Oil prices remained heavy after European PMI data confirmed the V-shaped recovery was not happening, as many regions lost momentum," Moya said. "The demand outlook needs both the US and Europe to be firmly in recovery mode."

Craig Erlam, also of OANDA, said a strengthening US dollar and still rising novel coronavirus cases across much of the world were also dragging on crude markets. And there was a softening risk appetite for oil at the end of the week, he said.

US crude production is down from nearly 13 million b/d before the pandemic to about 10.7 million b/d in August, according to the US Energy Information Administration.

Erlam said he questions whether US output will bearishly begin rising again with oil seeming to stay above $40/b. This week, both Enverus and Baker Hughes reported small increases in US drilling rig activity.

As for refined products, NYMEX September RBOB dipped 1.24 cents to $1.2841/gal and front-month NYMEX ULSD fell 3.87 cents to $1.2080/gal.

Watching OPEC+ compliance

Crude markets also could be reacting to continued fallout from the latest OPEC+ meeting and cynicism that the alliance will be able to persuade over-producing nations — Iraq, Nigeria, Angola and Kazakhstan — to comply with their quotas despite verbal agreements, said Bjornar Tonhaugen, Rystad Energy's head of oil markets.

"It looks quite challenging for certain members, such as Iraq, to compensate for their overproduction in previous months and that's taken as bearish news by the market today," Tonhaugen said, referencing OPEC's "naughty corner."

"COVID-19 does not seem to slow down and we see some return of restrictions in Europe and beyond. Even though OPEC+ seemed mostly optimistic about ... demand's recovery, we see it rather lagging," he said. "Demand, in our view, is only likely to near pre-pandemic levels in 2021, and the rest of 2020 will be a muted struggle while facing the effects of the second wave."

The positive spin for oil though, Tonhaugen added, is that most OPEC+ nations are complying with their cuts and there seems to be a solid floor on oil for now at close to $40/b.

Watching the Gulf of Mexico

Crude prices could be impacted in the week starting Aug. 24 though as two potential hurricanes simultaneously move across the Gulf of Mexico and near a bevy of oil-producing platforms.

Tropical Storm Laura, which the US National Hurricane Center is projecting could strengthen into a hurricane on Aug. 24, is heading into the Gulf and aiming toward Florida and Alabama.

Likewise, Tropical Depression 14, which also could become a hurricane on Aug. 24, is moving to the Yucatan Peninsula and toward Texas, according to the NHC.