The big tumble in crude prices yesterday mirrored the broader markets and was generated by growing nervousness around the rise in Covid-19 cases in the U.S. Still, prices came back after a strong bounce in durable goods and affirmation by White House Economic Advisor Larry Kudlow that the U.S. was not going to shut the economy down gave markets – including oil – prices a boost.
On the oil specific side of the equation, oil futures were weighed down by the EIA inventory once again, impacted by the lagged effect of Saudi crude supply rises which should now begin to ebb. At the same time, the implied demand recovery still looks favorable.
However, some concerns are emanating from a flatlining of mobility data in systematically critical state economies in the U.S. where the virus case counts are still rising, reminding us that we’re not out of the woods when it comes to Covid-19 spread just yet.
Looking at the global mobility data as a whole, the flatlining localized data and the likely reverse lower in California, Texas and Florida this week, it could be less meaningful with the global averages holding up. But the data could be relevant soon as some of the more infectious states begin to pause the grand reopenings on a mandated basis and consumers will be more prone to self-quarantine.
A third consecutive weekly U.S. crude increase that drove inventories to another new record had a limited impact on oil, thanks in part to the significant draw at Cushing and the drop in gasoline inventories.
Even knowing the Saudi supply overhang combined with improving sub-sectors inventories and the unclogging in Cushing, this still wasn’t enough to outweigh the wider market headwind resulting from growing coronavirus concerns, Adding to the negativity was a downgraded 2020 global GDP number from the IMF.
While prices lifted off the mat, there are concerns on both sides of the supply and demand ledger.
One oil-specific negative that could play out in the near-term: despite the mini-correction this week, WTI remains comfortably in the price zone that may ease U.S. production curtailments, which could mean more upward pressure on U.S. inventories and oil sentiment in coming weeks.
The other issue is that we could be seeing pent up demand in the U.S. data, which has helped offset the rising Covid-19 case counts in the three most populous states. But with Texas pausing the grand reopening's rates, with probably more to follow after the Centers for Disease Control and Prevention’s (CDC) grim warning on Thursday that 25 million Americans may have contracted the coronavirus – a figure 10 times higher than the number of confirmed cases. It could be a case of significant economic gains in May but not so much in June and July.
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US equities continue to welcome any high-risk event being put in the rear-view mirror – especially when rates markets look prime to consolidate lower