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Oil Declines on Signs of Rising U.S. Stockpiles, Covid Rebound

Oil Declines on Signs of Rising U.S. Stockpiles, Covid Rebound

(Bloomberg) — Oil fell as concerns about a second wave of coronavirus cases in China and signs of rising U.S. stockpiles weighed on the market.

Futures in New York were 1.1% lower. Beijing is battling a fresh wave of coronavirus infections, forcing the government to close all schools and cancel more than 1,200 flights. It highlights the risk facing the oil market just as prices have recovered from their depths in April. Producer group OPEC expects the virus to keep fuel demand subdued for the rest of this year.

Traders are also having to grapple with unprecedented levels of U.S. crude inventories. The American Petroleum Institute reported on Tuesday that supplies rose last week. If confirmed by government data later on Wednesday it would be a record high.

“The rally in oil prices is taking a breather as bearish U.S. supply fundamentals return to the fore,” PVM Oil Associates analysts Tamas Varga and Stephen Brennock wrote in a report.

With crude in New York drawing closer to $40 a barrel, there are signs of returning production in North America. ConocoPhillips will bring back its curtailed supply in Alaska from July, while the volume of shut production in the Bakken region is also declining.

Still, there are mounting signs that the physical market is recovering. In Europe, key swaps that help price millions of barrels of the world’s oil are trading in a structure that indicates tight supply, while derivatives that contribute to valuing Russian crude are also firming. Those gauges, in tandem with stronger equity markets, have helped buoy crude at times in recent days.

“Day-to-day oil trading has become a tussle between bearish oil data, particularly under-powered demand recoveries and record-high inventories, and top-down macro-led expectations of better things to come,” said Standard Chartered analysts including Emily Ashford.

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