Oil was anchored near $40 a barrel as investors weighed virus and weather-driven demand concerns against expectations US crude and gasoline stockpiles continued to shrink.
Vaccine trials are showing promising results but the pandemic is still raging unabated in many regions across the globe, while in China, the nation’s top refiner plans to cut operating rates at some of its coastal plants this month due to severe flooding. Meanwhile, American crude inventories probably fell for the third time in four weeks, according to a Bloomberg survey.
Oil’s recovery from its plunge below zero has stalled with surging infections across major economies raising doubts about a swift demand rebound. OPEC+ is preparing to return supply to the market next month after its historic cuts, while Chinese buying has cooled, leading to a decline in physical crude prices.
“The pace of oil price improvement in the face of real virus demand risks will likely remain sluggish,” Stephen Innes, chief market strategist at AxiCorp Ltd., said in a note. “There remains more considerable downside than upside price risk” unless the virus curve flattens and lockdowns are rolled back, he said.
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The impact of China’s flooding may end up being so severe that state-owned Sinopec ends up completely shutting some plants, said a company official with knowledge of the matter. The nation has been battered by massive floods, causing 64 billion yuan ($9.2 billion) in damages in July, according to figures from the country’s emergency management department.
In the US, crude stockpiles probably declined by 750,000 barrels last week, according to the median estimate in the Bloomberg survey. Supplies fell the most this year through the week ended July 10. Gasoline inventories have likely dropped for a third week.
Meanwhile, Chevron Corp. agreed to buy Noble Energy Inc. for about $5 billion in shares as the oil giant looks to beef up amid the wreckage of the worst-ever crude crash. The takeover is the industry’s first major deal since the coronavirus triggered a severe slump.