Brent crude (LCOc1) fell by 0.2%, to $42.04 a barrel by 0655 GMT, while U.S. crude (CLc1) was at $39.72 a barrel, down by 0.3% following concerns over a record rise in Coronavirus infections globally.
Both contracts rose about 9% within the past week and Brent crude futures have entered backwardation, meaning that oil required for immediate delivery now costs more than the oil to be provided later. This is typically an indication of tightening supply.
Howie Lee, an economist at Singapore’s OCBC Bank explained that “The market has entered a slight backwardation up to October. It times in with some of our estimates that by around November, the market could get really tight. I find it more difficult for oil to move higher at this point, especially with the growing concern about second-wave contagion.”
The World Health Organization announced a record increase in global infections yesterday, Sunday, with the biggest increase seen in North and South America.
Last week in the United States and Canada, the number of operating oil and natural gas rigs fell to a record low. This is even as higher oil prices led to a number of producers to start the drilling process again.
The OPEC group, which consists of OPEC countries as well as its allies, including Russia, have not decided on whether to extend the record supply cut of 9.7 million barrels per day in August, making it the fourth month.
Other spikes in virus infections in certain regions like the Chinese capital of Beijing and Australia’s second-most populous state, Victoria, have also led to further restrictions on movement to limit the spread.
Since 31 December 2019 and as of 22 June 2020, 9,078,597 cases of COVID-19 (in accordance with the applied case definitions and testing strategies in the affected countries) have been reported, including 471,248 deaths, while 4,861,834 have recovered.