Rising US jobless claims and ongoing concerns about a slow economic recovery from the coronavirus pandemic combined to push crude oil prices down Aug. 20, even though OPEC+ expressed optimism about stronger oil demand by the end of 2020.
Shorter-term pessimism, though, continued to keep crude prices relatively rangebound as front-month NYMEX WTI has mostly floated between $40/b and $43/b since early July. Both the Federal Reserve and OPEC+ cited recovery woes on Aug. 19. The next day, oil prices initially appeared to be in for a steeper daily fall, but ended with a more modest dip.
NYMEX September WTI lost 35 cents to settle at $42.58/b on its last trading day for the contract, while ICE October Brent fell by 47 cents to $44.90/b.
New coronavirus cases remained strong in the US and the virus has shown signs of surging again in parts of Europe, including Germany, Spain and the UK.
In addition, US jobless claims jumped back above 1 million for the week ended Aug. 15. New unemployment benefits applications rose to 1.11 million from 971,000 in the week prior, the US Department of Labor said Aug. 20.
"Crude demand outlooks will likely need strong downgrades if both Washington D.C. fails to deliver adequate stimulus relief next month and if Europe struggles to contain the virus," said Edward Moya, senior market analyst for foreign exchange company OANDA. "COVID-19 is stubbornly not going away, and this is starting to kill the global economic recovery, which will prevent oil-producing nations from ramping up production."
Minutes were released on Aug. 19 from the Federal Reserve's policy arm's meetings on July 28-29 in which the Federal Open Market Committee members said they remained concerned that the coronavirus pandemic would continue to stunt economic growth for longer than previously anticipated.
As for products, NYMEX September RBOB rose slightly by 0.60 cent to $1.2965/gal, while September ULSD dropped by 0.43 cent to $1.2467.
On the other hand, given the economic news, Moya said, the only slight dip in prices had an almost bullish effect.
"Energy traders appear to be confident that OPEC+ will not continue to taper production cuts if the demand outlook diminishes," Moya added.
Eyes on OPEC+
OPEC+ energy ministers said Aug. 19 that they feared demand recovery would remain slow this fall, but they still suggested global oil demand could return to 97% or pre-pandemic levels by the end of 2020.
If that 97% comes to fruition, OANDA analyst Craig Erlam said that would be "a staggering bounce back under the circumstances."
As for actual compliance, OPEC+ expects its total production volumes to fall a bit as it works to enforce stronger compliance with nations that continue to produce more oil than their quotas allow, especially Iraq, Nigeria, Angola and Kazakhstan.
But this comes after OPEC+ began to churn out more oil in August after it reduced its output reduction levels from 9.7 million b/d from May through July to 7.7 million b/d beginning in August.
OPEC+ seems to be at a crossroads, according to Matt Reed, vice president of Foreign Reports, which focuses on Middle East oil politics.
"They've done everything they can and they've put a floor under prices. That's a huge achievement," Reed said. "But they're also flying blind like everyone else who isn't sure what to expect this year or in 2021."
Reed said the Saudis and Russians seem to understand that the virus is in the driver's seat.
"All they can do is meet often, maintain a constructive dialogue, and stay flexible for when it comes time to change course again," Reed added. "This is going to be a marathon, and that's why discipline and compliance are so important."
The 23-country coalition exceeded its overall quotas by 357,000 b/d from May through July, according to S&P Global Platts calculations, despite over-compliance from top producer Saudi Arabia.
Iraq was the biggest violator during the three-month period, pumping out 285,000 b/d above its quota allowance, according to Platts' calculations based on confidential data, which is collected through the averages of the six secondary sources used by OPEC+ to monitor output.
Eyes on the Gulf of Mexico
The other short-term factor at play is a busy North American hurricane sector and any impacts that storms could have in the Gulf of Mexico as meteorologists watch to see if new tropical depressions form strong eyes and become named storms.
Tropical Depression 13 was moving toward Florida from the Atlantic Ocean with the US National Hurricane Center projecting that it will become a hurricane early next week.
Likewise, Tropical Depression 14 was approaching the Yucatan Peninsula on a projected path toward Texas. The NHC expects it to become a named tropical storm as early as late Aug. 20.
Both storms could impact Gulf Coast oil production early next week.
