Oil edged higher, recovering from its biggest loss in almost two weeks even as a resurgent coronavirus looms over the demand outlook.
Futures in London were up 1.3% near $42 a barrel, snapping a sharp decline from Monday alongside the European markets. Brent also recovered from technical support, moving away from their 100-day moving average on Tuesday.
That’s despite tightened restrictions in the UK, to prevent the spread of coronavirus, and a warning the US could experience another outbreak cycle dampening sentiment. The expected reopening of Libya’s battered oil industry has also weighed on the market in recent days.
Crude’s slump early this week saw volatility jump higher as markets begin to buckle under a renewed wave of virus cases. As governments mull tighter restrictions to prevent its spread, there’s a renewed risk to oil demand, and industry giants including China’s biggest oil company have said refined products demand could peak as soon as 2025.
“A tad softer dollar and a bounce in stocks has given the market a boost so far today,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “But it does not remove the fact that fundamentals once again look challenged.”
There are also ongoing concerns about the health of the diesel market. In both Asia and Europe, the profit from making the fuel is now lower than it was in the depths of the first wave of the pandemic. Weak refining margins limit the incentive for refiners to keep processing more crude.