Oil steadied in New York as the boost from a weaker dollar offset concerns that the resurgence of coronavirus will crimp fuel demand.
Futures held above $38 a barrel, recouping earlier losses of 2.6% as the slide in the US currency made dollar-priced commodities an attractive hedge. Still, sentiment in crude markets remained fragile after last week’s 3.2% slide.
A surge in infections across the southern and western US is causing states including Texas to reinstate measures to halt its spread.
After rebounding rapidly from its plunge below zero in April on supply cuts and recovering demand, crude has fallen in two of the last three weeks. Stockpiles in the US are at record highs, worldwide consumption is still a long way off pre-virus levels and many refiners are struggling with low margins. Oil for recent delivery is trading at a discount to those further out in a market structure known as contango that indicates supplies are plentiful.
“The specter of Covid is haunting the market once again, raising concern that a slowdown in the reopening of the US economy will affect the recovery in demand for transport fuels,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.
Prices would likely fall further if it wasn’t for efforts by the Opec+ alliance to restrict production. Iraq is reassessing contracts to pump crude at fields where costs are high as it tries to contain expenses while curbing production, in a sign of the commitment to ease a global glut.
Separately, China’s state-owned refining giants are in discussions to form a joint purchasing group to buy crude, a move that has the potential to alter the balance of power between sellers and buyers in the oil market. That could increase the Asian giant’s bargaining power and avoiding bidding wars.