Cooling Demand Recovery Keeps Oil Stuck Around $40
By Amrith Ramkumar
Gasoline demand in the U.S. has flatlined for much of the third
quarter, keeping crude-oil prices near $40 a barrel and challenging
the global energy industry heading into the final months of the
Fragile fuel demand joins other indicators of economic activity
-- from consumer spending to hiring -- in signaling that growth is
softening after a surge from April to June. That trend has many
investors skittish as fall begins, particularly with November's
presidential election quickly approaching and the federal
government failing to pass additional economic-stimulus
U.S. crude-oil prices are set to end the third quarter just
below $40 a barrel -- almost exactly where they started it. Oil
inched higher for much of the quarter before peaking above $43 on
Aug. 26, then swung around the $40 level. Prices started the year
above $60 and briefly dipped below $0 for the first time in late
April, when pandemic shutdowns spawned a glut.
Some analysts are wary that surpluses could begin building
again. Gasoline supplied by energy companies in the U.S., a proxy
for demand, has stayed relatively flat over the past three months
after surging from late April to late June, government data show.
Fuel demand typically peaks in the summer and analysts are
concerned that consumption could trail consensus forecasts as the
weather cools in much of the country and people stay inside
Gasoline demand also is faltering in other key oil-consuming
countries that have been hit hard by the coronavirus, such as
India. And with many flights canceled, consumption of jet fuel
around the world remains low.
In addition to hurting energy producers -- many of which are
slowly increasing production after slashing output earlier in the
year -- oil's lackluster quarter highlights the winding path for
the economy in the months ahead. Perhaps no major financial asset
has been hit harder by the pandemic than oil, and recent price
moves signal that the recovery from coronavirus could take much
longer than initially anticipated.
"It's hard to paint the bullish demand story for energy in the
short term...I just don't see it," said Jennifer Rowland, senior
energy analyst for Edward Jones. "Instead, I see all the warning
U.S. crude futures recently traded at $39.98 a barrel. Brent
crude futures, the global benchmark of prices, are at $42.35 a
barrel and also have wobbled lately.
Analysts say prices are still too low for many producers to
profitably extract oil, forecasting more bankruptcies and mergers
and acquisitions in the months ahead. The S&P 500 energy
sector, a group that includes producers such as Exxon Mobil Corp.
and Chevron Corp. has fallen nearly 20% in the third quarter,
though it remains well above a low point hit early in the year. The
S&P 500, meanwhile, is up 8.1% for the quarter, despite a
"It doesn't look like there's going to be the type of growth in
demand that producers really need to sustain a major price recovery
at this point," said Andy Lebow, senior partner at Commodity
Research Group. "It's clearly going to take time."
Hedge funds and other speculative investors remain cautious and
have steadily lowered net bets on higher U.S. crude prices since
mid-June, though net bullish bets have ticked up again recently,
Commodity Futures Trading Commission data show.
Traders also are grappling with the prospect of higher oil
output from Libya, a member of the Organization of the Petroleum
Exporting Countries. Libya's National Oil Corp. has restarted
production in recent weeks after two rival governments declared a
cease-fire in the country's civil war last month, raising the
prospect that Libyan exports could add to OPEC supply flowing
through global markets.
The higher output could increase pressure on OPEC members and
allies such as Russia to adjust to the Libyan output and comply
with the group's production limits in an attempt to support crude
A market-share battle between Saudi Arabia, the de facto head of
OPEC, and Russia earlier in the year contributed to a collapse in
crude prices even as global shutdowns dented demand. That was the
latest example in recent years of OPEC surprising investors, and
analysts are bracing for the prospect that supply could exceed
demand if fuel consumption falters even more in the months ahead
and Libyan output keeps rising.
"Someone has got to make room for that [oil]," Ms. Rowland said.
"That just puts more reliance on OPEC, which is a tenuous place for
the oil market to be."
(END) Dow Jones Newswires
September 29, 2020 10:49 ET (14:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.