'Lifeless' Oil Clings to $40s as Market Looks for Clues

By Barani Krishnan

Investing.com - One wonders if it’s the same oil market that went and came back from the hell of minus $40 a barrel. But it is. And if the last couple of sessions prove anything, it is that the life has been sucked out of it.

New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled up 31 cents at $41.60 per barrel on Monday.

London-traded Brent, the bellwether for global crude prices, rose 7 cents to settle at $43.41 per barrel.

Trading in WTI and Brent has been anemic since Thursday’s close in New York, with both benchmarks plodding along just a few cents in either direction on uncertainties around demand for fuel amid the raging new wave of coronavirus cases in the United States and other global hotspots.

Goldman Sachs (NYSE:GS) reinforced the notion of the market’s hapless state with a note at the weekend that said: “Following a year of unprecedented shocks, uncertainties over oil fundamentals has never been higher.”

The investment bank, one of Wall Street’s most influential voices in commodities trading, said its “bottom-up” oil forecasting model from the demand collapse of April and May shows global oil demand improvements were sharply slowing, down 60% in July relative to the May-June pace of gains.

Goldman’s “top-down” model, however, indicates monthly demand data covering 75% of global demand.

“Crude remains trapped in the low-$40s as virus uncertainty could keep demand tepid and as deteriorating relations between the U.S. and China could jeopardize the phase-one trade deal, which would diminish global demand outlook,” added Ed Moya, analyst at New York’s OANDA.

President Donald Trump’s national security adviser, Robert C. O’Brien, has tested positive for the coronavirus, the White House said on Monday, making him the most senior White House official known to have contracted the virus which has already infected some 4.4 million Americans and killed about 150,000 of them.

The U.S. economy shrank 5 percent in the first three months of 2020 for its sharpest decline since the Great Recession of 2008/09, as most of the 50 states in the country went into lockdown to stem the outbreak of the virus. While most businesses have reopened over the past two months, economists still warn of a double-digit recession in the second quarter.

Alternatively, trillions of dollars of COVID-19 stimulus passed by governments and global central banks have debased the dollar, driving it to a near 2-year low and heightened inflation fears — a situation that typically boosts prices of commodities like oil and gold, which shot to record highs on Monday.

Republicans led by Trump have finalized a fourth coronavirus relief bill, worth about $1 trillion, to provide temporary and reduced extension of unemployment benefits, another round of stimulus checks, liability protection for businesses and funding to help schools restart. It will also include $16 billion in new funds for testing and tax incentives to encourage companies to rehire employees.

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