By John Kemp
LONDON- Crude oil traders have become progressively less bullish about the outlook for prices in recent weeks as concern over the lingering COVID-19 epidemic and its impact on the economy have trumped output cuts by the OPEC+ group of producers.
Oil prices climbed higher on Monday, lifted by China’s plans to ship in large volumes of US crude in August and September, outweighing concerns over a slowdown in demand recovery after the coronavirus pandemic and an uptick in supplies.
Brent crude rose 21 cents, or 0.5 percent, to $45.01 a barrel while US West Texas Intermediate crude CLc1 was up 27 cents, or 0.6 percent, to $42.28 a barrel.
Chinese state-owned oil firms have tentatively booked tankers to transport at least 20 million barrels of US crude for August and September, Reuters reported on Friday, as China ramped up energy and farm purchases ahead of a review of the Sino-US trade deal.
Record crude imports from world’s top importer China and the easing of COVID-19 restrictions globally have supported oil prices, although new waves of coronavirus outbreaks in several countries are expected to cool consumption again.
In retrospect, the second half of June and first half of July marked the peak of optimism about a rapid drawdown in excess oil stocks and a rise in prices. In the weeks since, positive sentiment has been ebbing away.
In the physical market, dated Brent’s five-week calendar spread peaked in a backwardation – where future prices are lower than current prices – of more than $1 a barrel on July 16 and has since fallen back to only 36 cents, indicating a slower expected drawdown in stocks.
On the futures side, Brent’s six-month spread peaked in a contango – where the price of crude for delivery at a future date is higher than that for prompt delivery – of 48 cents per barrel on June 19 and has since slipped to about $2.33, again signaling that traders expect inventories to remain plentiful.
Brent’s front-month price has continued to climb but the rate of increase has slowed to only 12 percent over the past two months, down from 104 percent in the two months to June 24.