Oil slips towards $59 as investors weigh near-term demand outlook

Oil dropped toward $59 a barrel as investors assessed the near-term demand outlook amid a Covid-19 flare-up in some regions, while a rising dollar reduced the appeal of commodities priced in the currency.

Futures in New York lost 0.5 per cent on Monday after falling 3.5 per cent last week. Federal Reserve Chair Jerome Powell told CBS’s “60 Minutes” that the US economy was poised for stronger growth, but he cautioned that the virus still remains a threat. That’s been highlighted in other regions including parts of Europe, while a second wave in India is overwhelming the health system.

Indian gasoline consumption, meanwhile, rose in March to the highest level in four months as millions of people favoured cars over public transport to avoid being infected by the coronavirus. Overall oil-product demand fell, however.

Oil’s robust start to the year faltered in mid-March as a resurgence of Covid-19 and renewed restrictions in some regions raised concerns about the outlook for near-term fuel demand. 

The market is also facing rising supply after the OPEC+ alliance agreed to add more barrels from May, although Saudi Arabia’s energy minister said the decision to boost output was the right move. Iran is also a wildcard for the market. Talks between the OPEC producer and world powers on resuscitating a 2015 nuclear accord are set to continue this week after an initial round of discussions, described by a senior US official as a good first step but still short of what’s necessary for a revival of the deal.

“While rising virus cases will have an impact, the vaccination drive is progressing really well,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “I think markets will overlook the short-term weakness and focus on the longer-term. Demand will go up for sure.”

The prompt timespread for Brent was 43 cents a barrel in backwardation -- a bullish market structure where near-dated contracts are more expensive than later-dated ones -- compared with 32 cents a week earlier.

Fed officials have repeatedly stressed that the U.S. economy continues to need aggressive monetary policy support as it recovers from the pandemic, even as the outlook brightens amid widening vaccinations. In the U.K., some scientists are saying the country could achieve so-called herd immunity as soon as Monday, moving on from the worst of the outbreak.