Oil futures lost ground Friday, leaving both major benchmarks on track for their third weekly decline in four weeks as worries about the demand outlook grow in response to rising COVID-19 cases.
West Texas Intermediate crude for November delivery fell 37 cents, or 0.9%, to $39.94 a barrel on the New York Mercantile Exchange. December Brent, the most actively traded contract, was down 29 cents, or 0.7%, at $42.15 a barrel on ICE Futures Europe, while front-month November Brent fell 23 cents, or 0.5%, to $41.71 a barrel. Based on the most actively traded contracts, WTI, the U.S. benchmark, was on track for a 2.9% weekly fall, while Brent was down 2.2%.
A rising number of COVID-19 cases have prompted the resumption of some lockdown restrictions in European countries, while stoking concerns about the U.S. economic outlook.
A lack of additional stimulus from Washington has added to worries the U.S. economic rebound will lose steam heading into year-end. House Democrats on Thursday were preparing a $2.4 trillion aid package that includes a number of items seen having bipartisan support, including direct payments to households, the Paycheck Protection Program, a revival of a federal add-on to state unemployment benefits, as well as a renewal of aid to airlines and money to help restaurants stay open. But analysts warned that the path to an agreement remained unclear.
Meanwhile, concerns about demand have been underlined by pressure on refining margins.
“We have repeatedly cited that crude prices will have difficulty rallying, on a structural basis, unless refining margins lead the path higher. And while U.S. gasoline stocks have reverted, in remarkable fashion, to seasonal norms, distillate inventories remain the acute issue overhanging the oil complex,” said Michael Tran, analyst at RBC Capital Markets, in a Thursday note.
He noted that the spot Nymex distillate crack spread—a crack spread is the difference in price between a barrel of oil and the products refined from it—is down by nearly half since mid-July, despite refiners cutting runs by an estimated 3.7 million barrels a day through the summer and domestic refiners shifting yields away from jet fuel at the fastest pace since the Energy Information Administration began tracking the data.
“In short, refiners are pulling all the possible levers to minimize jet production, yet distillate stocks remain stubbornly high. Based on our global mobility tracker, we estimate that 43% of U.S. flights remain sidelined, which models to 820,000 barrels a day of U.S. jet fuel demand destroyed daily,” Tran said.
Supply-related worries have also hung over the market this week, with Libyan output set to pick up after a military commander moved to lift a blockade of ports that has virtually strangled production for the past eight months.
Investors will also be watching data from oil-field-services company Baker Hughes, which will report its weekly tally of U.S. drilling rigs on Friday afternoon.