Thursday, February 2, 2023

Oil Prices Fall Again as Covid-19 Surge Pushes Politics to the Wings By


© Reuters.

By Geoffrey Smith — Crude oil prices fell again on Friday, as the surge in Covid-19 cases across the U.S. intensified fears of new measures to clamp down on economic and social life in the wake of the election, denting U.S. demand.

Demand concerns – which also extend to Europe and Russia, where the Covid-19 infection curve is similarly dramatic – overshadowed any broader sign of relief in risk assets as the U.S. labor market report came out stronger than forecast, while Joe Biden edged closer to ending the uncertainty over the presidential election outcome.

By 11:30 AM ET (1630 GMT), futures were down 3.4% at $37.47 a barrel, on course for a gain of some 5.6% over the week. The international benchmark was down 3.0% at $39.71 a barrel.

U.S. were down 2.5% at $1.0880 a gallon.

While that’s a solid weekly gain, it still appears to be largely an upward correction of a longer downward trend, caused by the weakening of the developed world’s economy. The Eurozone and U.K. economies are both set to shrink again in the current quarter as public health measures hit the service sector in particular. Many expect the U.S. – which posted a nationwide record for new infections three times this week – to follow where Europe has led.

Oil’s gains have been also held back this week by the perception that the election result will prevent a large and effective fiscal stimulus package for the U.S. economy being passed quickly, with the Republican party apparently set to keep control of the Senate.

The uncertain outlook adds a bit of spice to the CFTC data on net positioning in crude futures, which will be released later Friday. Financial players had tentatively started to add long positions again in the last six weeks after a panicky end to the summer. However, their willingness to stay long may depend on the willingness of OPEC countries and Russia to push back an output increase of nearly 2 million barrels a day, currently scheduled for January 1.

Also later, Baker Hughes will report its rig count for the latest week. The rate of U.S. drilling has picked up a little in recent weeks, with the number of active rigs rising from a low of 180 to 221. However, that’s still less than one-third of what was active in March.

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