Oil dipped in tandem with a risk-off move in US equities as investors await a clear signal on supply amid expectations for a build in stockpiles.
Futures in New York declined as much as 1.4% on Tuesday. Equities across the US, Europe and Asia weakened with investors laser-focused on corporate earnings results as an indication of the economic damage caused by Covid-19. Further compounding concerns, consultant Rystad Energy A/S highlighted the risks to crude’s recovery from a record glut earlier this year, saying it expects oil supply to eclipse demand for the next four months. In the US, a weekly tally of inventories will probably show crude stockpiles increased after last week’s nearly 5-million-barrel build.
“We are having a little bit of risk-off trading today,” said Bart Melek, head of global commodity strategy at TD Securities. “That is prompting less optimism on the crude market. We don’t think it’s going to get as tight as we thought just not that long ago.”
Crude prices have struggled to find direction with futures in New York bouncing in a tight range around $40 a barrel. Support from a weaker dollar that has increased the appeal of commodities priced in the greenback is going toe to toe with a resurgent pandemic threatening the prospects for a demand rebound. Countries from the Netherlands to Malaysia are facing a rise in new cases and China’s virus cluster has spread to Beijing.
“The market is looking for direction,” said Tom Finlon of GF International. “The coronavirus is the weight on it all, and the primary theme continues of consolidation in outright pricing.”
The futures curve is also showing signs of weakness. Brent’s September futures were 40 cents cheaper than for October, compared with a 23-cent discount a week earlier. The difference between the front- and second-month price is known as the prompt timespread. WTI’s prompt spread has also declined.
“Weakening Brent time spreads are indicative of an abundance of physical oil available or an increased difficulty in placing barrels,” said Michael Tran, an analyst at RBC Capital Markets.
The Bloomberg Dollar Spot Index fell as much as 0.5% Tuesday to the lowest level since September 2018.