Oil held near a four-month high after speculation the Federal Reserve will keep U.S. interest rates near zero for longer buoyed markets.
Futures in New York was steady near $41.50 a barrel after rising 0.8% Monday on expectations Fed Chairman Jerome Powell will strike a dovish tone at a rate meeting on Wednesday amid a resurgence in coronavirus cases around the world. A gauge of dollar strength fell to the lowest level since September 2018, providing more support for oil that’s priced in the U.S. currency.
Behind the headline oil prices there are signs the market is getting weaker, with global benchmark Brent’s prompt timespread at the widest contango since May. The market structure — where nearer-dated contracts are cheaper than later ones — is a bearish signal indicating concerns about over-supply are growing.
Nervousness is increasing as the OPEC+ alliance prepares to start pumping more crude from next month at the same time as the pandemic stages a comeback in countries from China to Spain to Germany. The volume of oil parked in floating storage is 244% higher than a year ago, data from Vortexa shows, highlighting the amount of excess crude that still needs to be used.
“The risk is if we see an even more dovish Fed this week, I suspect we could see a rally in risky asset classes like commodities,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. “That’ll present an issue for investors contemplating those dynamics against what certainly looks like weaker fundamentals.”
West Texas Intermediate for September delivery fell 0.2% to $41.52 a barrel on the New York Mercantile Exchange as of 12:25 p.m. in Singapore.It’s trading near its closing price of $41.96 on July 21, which was the highest finish since March 5.
Brent for September settlement added 0.1% to $43.46 on the ICE Futures Europe exchange after advancing 0.2% on Monday.
Brent’s September futures were 51 cents cheaper than October contracts. That compares with a 23 cent discount a week earlier. The difference between the front- and second-month price is known as the prompt timespread. The same spread for WTI was 21 cents in contango, from 13 cents in contango a week ago.
China, meanwhile, continues to lag behind the pace of imports from the U.S. needed to meet the terms of the two nations’ trade deal, amid a worsening diplomatic standoff that’s sparking global fears of a new Cold War. Purchases of energy products are only at about 5% of where they need to be by year-end.
Other oil-market news
Egypt’s Sumed pipeline was designed to pump 2.5 million barrels of Persian Gulf crude from the Red Sea to the Mediterranean every day. Since May, a slump in oil demand and OPEC+ oil production cuts seem to have combined to slash flows to about a quarter of that.
Total SE is exiting the U.K. refining business with the sale of its Lindsey refinery to Prax Group as the French oil major slashes costs and divests assets to weather the slump in demand caused by the coronavirus.
Crude futures fell 1.4% to 290.8 yuan a barrel on the Shanghai International Energy Exchange after declining 0.3% on Monday.