Oil declines near $40 with rising inventories, dollar

Bloomberg

Oil fell in New York after an industry report signalled another increase in US crude stockpiles, while the spread of the coronavirus continued to cloud prospects for an economic recovery.
Futures dropped 1.6%, extending the decline after settling at the highest since early March on Monday. The American Petroleum Institute reported that inventories rose by 1.75 million barrels last week, according to people familiar with the data. That would be a third weekly gain if confirmed by government figures on Wednesday. The dollar also climbed, adding to pressure on prices.
Oil has rallied since plummeting below zero in April as producers slashed output and countries eased lockdown restrictions, boosting demand. Yet the virus threat remains acute. The US government’s top infectious-disease expert, Anthony Fauci, said he’s seeing a “disturbing surge” in new cases.
While the “focus lies on the inventory data,” there’s also persistent anxiety around the growth of the pandemic, said Hans van Cleef, senior energy economist at ABN Amro. “Hopes for a rise in demand are counterbalanced by fears regarding new Covid-19 spread.”
The prompt time spread for Brent flipped back to contango after three days in backwardation. The strength in key swaps that price North Sea oil has also subsided in recent days.
Newly diagnosed virus cases and other indicators of the pandemic’s spread have soared in hot spots across the US, driving city and state officials to consider slowing or reversing reopening plans. Infections are growing in Texas, Florida, Arizona and in California. Yet American gasoline demand has now returned to about 80% of where it was last year, according to IHS Markit.
While the API indicated a gain in nationwide crude stockpiles, it reported that supplies at Cushing, Oklahoma, the delivery-point for US futures, fell by 325,000 barrels, and gasoline inventories slid by 3.86 million barrels. A Bloomberg survey estimates the increase in US crude stockpiles at 1.5 million barrels.
Anxiety over trade also weighed on the market, with the US mulling new tariffs on $3.1 billion of exports from France, Germany, Spain and the UK, adding to an arsenal of measures against the European Union that could spiral into a wider transatlantic trade fight later this summer.