Oil futures bounced on either side of unchanged Friday, but U.S. prices are on track for a weekly gain, as investors weigh some signs of economic improvement against tensions between the world’s biggest economic superpowers, both of which may influence global energy demand.
Traders also continued to eye the impact of growing cases of COVID-19 in parts of the world, which could lead to a slowdown in economic recovery.
“New COVID cases and the growing cold war between the U.S. and China” put pressure on oil, said Phil Flynn, senior market analyst at The Price Futures Group. Still, it seems that parts of global economy are recovering, “as economic data is blowing out to the upside.”
Oil traders said that economic data out of Europe helped to inject some optimism in markets about oil demand. The eurozone manufacturing PMI rose to 51.1 from 47.4 in June, and the services PMI rose to 55.1 from 48.3 in June, as the composite PMI of 54.8, a 25-month high In China, “refinery runs in July most likely hit record highs as companies lift average run rates to 84% of capacity,” said Flynn. S&P Global Platts reported that crude throughput at China’s domestic refineries rose 9% year on year to hit an all-time high of 14.14 million barrels per day in June, citing data from the General Administration of Customs.
West Texas Intermediate crude for September delivery on the New York Mercantile Exchange was down 22 cents, or 0.5%, at $40.85 a barrel, after declining 2% on Thursday. September Brent crude shed 8 cents, or 0.2%, at $43.23 a barrel on ICE Futures Europe, following a 2.2% skid in the previous session.
For the week, WTI was on pace for a 0.3% weekly gain, and Brent was looking at a 0.1% gain.
China ordered the closure of a U.S. consulate in Chengdu, in apparent retaliation for the U.S. ordering the closure of a Chinese consulate in Houston earlier this week, highlighting elevated tensions between Beijing and Washington, among the biggest consumers of crude and its byproducts.
President Donald Trump also added to a sense of iciness forming between the nation’s when he said late Thursday that the trade pact forged between the country’s last year and signed earlier this year “means much less” to him than it did before.
The U.S. has accused China of mishandling the COVID-19 outbreak, which was first identified in Wuhan, China in December.
U.S. Secretary of State Mike Pompeo on Thursday also called on governments around the world to join the U.S. in confronting China’s Communist Party leaders, saying in a fiery election-year speech that engagement with Beijing has failed.
“Smooth international trade relations are needed for oil demand to remain uninterrupted on the long term and tensions between the U.S. and China are never a good sign,” wrote Bjornar Tonhaugen, head of oil markets at Rystad Energy, in a daily note.
“Closing consulates is a clear escalation and how this relationship develops is something to keep an eye on,” he said.
Thus far, the market has exhibited muted reactions to recent Sino-American flare-ups amid the COVID-19 pandemic.
Commodity analysts said that storms forming in the U.S. Gulf Coast, however, could buoy crude prices because they could create supply disruptions in the oil-rich region. Tropical Storm Hanna formed late Thursday in the Gulf of Mexico, was at about 285 miles from Corpus Christi, Texas early Friday, according to the National Hurricane Center.
Hanna, as well as Tropical Storm Gonzalo, and a storm expected to be named later, “will no doubt mess up oil imports and exports in the coming weeks,” said Flynn.
On Nymex, August natural gas traded at $1.771 per million British thermal units, down 0.8%. The contract trades about 2.8% higher for the week.
Among the petroleum products, August gasoline edged up by 0.3% to $1.2619 a gallon, but August heating oil fell 0.1% to $1.2528 a gallon. Both contracts are poised for weekly gains.