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Crude oil futures slip on rising coronavirus infections worldwide

Singapore — 0230 GMT: Crude oil futures traded lower during mid-morning trade in Asia July 20 as rising coronavirus infections worldwide weighed market sentiment down.

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At 10:30 am Singapore time (0230 GMT), ICE Brent September crude futures were down 24 cents/b (0.49%) from the July 17 settle at $42.90/b, while the NYMEX August light sweet crude contract was down by 20 cents/b (0.46%) at $40.39/b.

Rising demand and a strong drawdown on inventories, with the US Energy Information Administration's data showing inventories falling 7.5 million barrels and total product supplied for distillate fuel oil climbing 22% to 3.69 million b/d for the week ended July 10, signaled improving demand-supply fundamentals and kept prices buoyant last week.

However, lingering concerns over rising coronavirus infections worldwide and its impact on demand continued to weigh on market sentiment and limited the upside. The rolling three-day daily average for cases globally is at a record high 242,000, with the US contributing to nearly 30% of these case counts, latest data from John Hopkins University showed.

"Even though the US had continued to see a rising number of cases, printing a record daily count of above 77,000 into the end of last week, the relatively contained mortality rate compared to the earlier flare up in the March to April period had perhaps downplayed some of the market concerns on hand," Pan Jingyi, market strategist at IG, said in a July 20 note.

On the supply front, while OPEC+ has agreed to taper production cuts to 7.7 million b/d starting from August, extra compensation cuts of roughly 840, 000 b/d from previously non-compliant countries indicates only 1.1 million b/d of returning production, instead of the anticipated 2 million b/d.

At the same time, even as an increased supply of crude from producers was seen as largely negative for the oil markets amid an uncertain demand outlook, the willingness of member nations to comply with agreed production cuts and a guarantee of the principle of compensation is ultimately supportive.

"In the coming months, my rangebound price forecast remains anchored to the view that OPEC compliance will provide a dependable price plank. At the same time, bullish ambitions will continue to be thwarted by the COVID-19 demand risk," Stephen Innes, chief global markets analyst at AxiCorp, said in a note July 20.

He added that, while "the medium and longer-term trajectory looks broadly positive", the steepening epidemic curve has to flatten and oil demand has to pick up again before the market will view oil as an absolute risk-on trade.