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Oil complex retreats as economic uncertainty clouds demand outlook


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US oil, gas rig count up by six at 294

New York — The oil complex settled lower July 23 as demand outlook came under pressure amid growing economic uncertainty following a weak US jobs report.

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NYMEX September WTI settled 83 cents lower at $41.07/b and ICE September Brent was down 98 cents on the day at $43.31/b.

Oil futures, which were already trending off overnight highs, turned lower ahead of US trading after US Labor Department data showed initial unemployment claims climbed to 1.416 million in the week ended July 18.

"The recovery appears to be stalling as jobless claims rose for the first time since March and as continuing claims remain elevated," OANDA senior market analyst Edward Moya said. "The economy does not seem to be on sound footing anymore and with high uncertainty with the direction of the coronavirus, businesses will likely struggle to justify hirings."

NYMEX August RBOB settled 2.42 cents lower at $1.2586/gal and August ULSD was down 1.66 cents at $1.2541/gal.

"We had that big EU package earlier this week but there is still a lot of uncertainty about what [the US] is going to do," Tradition Energy analyst Gene McGillian said. "As we get close to the end of the CARES package, if there isn't anything to be done, worries about how the economy will perform in the second half of the year could bring some more selling out of the woodwork."

On July 21, EU leaders announced a Eur750 billion ($869.71 billion) stimulus package aimed at offsetting the economic impact of the coronavirus crisis. But there is little clarity regarding what action, if any, Congress will take to address the expiration later this month of a federally-funded $600 weekly unemployment stipend.

US President Donald Trump has pushed for any relief package to include a payroll tax cut. However, the idea faces opposition from both Congressional Republicans and Democrats.

US Treasury Secretary Steven Mnuchin said July 23 that a Republican plan to extend enhanced unemployment benefits would be based on a 70% wage replace scheme, according to media reports.

On July 22, media reports suggested that Senate Republicans were considering extending the benefit package through December, but at a reduced rate of $100 per week.

Meanwhile, the US oil and gas rig count rose by six on the week to 294, rig data provider Enverus said July 23, marking the second consecutive week of increases after more than four months of steep contraction amid pandemic-induced low crude prices and the decimation of global oil demand.

The WTI forward structure turned more bearish. While the contango in front-month versus second-month futures was steady at 14 cents/b, it opened to $1.51/b for the front-month versus year-ahead contract, out from $1.19/b on July 22.