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Monday, August 3, 2020

Oil ends up higher to register the gain in July, but traders are preparing for a greater offer

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Oil futures finished higher on Friday, recording a monthly gain, as investors weighed on an uncertain prospect of demand and an expected increase in supplies while the main producers slackened their margins.

West Texas Intermediate crude for delivery in September CL.1,
+ 1.27%
CLU20,
+ 1.27%
rose 35 cents to 0.9%, closing at $ 40.27 a barrel on the New York Mercantile Exchange, while October Brent crude BRN00,
+ 0.39%,
the global benchmark added 27 cents, or 0.6%, to end at $ 43.52 a barrel on ICE Futures Europe. The WTI posted a monthly increase of around 2.6%, while Brent rose more than 5% in July.

Some analysts see room for the rebound in oil prices from lows to report sufficient production to limit the potential for further price hikes.

“Prices have rebounded and are currently close to breakeven levels for many manufacturers – we believe this will encourage manufacturers to bring back supply and even drill more,” wrote analysts led by John LaForge at the Wells Fargo Investment Institute , in a Friday Note

“The ability to increase the oil supply is significant both in the United States and abroad. Any price hike from current levels will likely be met with an excessive supply deluge, “they said.” This should keep a cap on oil prices which move significantly higher than current levels. “

Some analysts see the market potentially grappling with an expected increase in production as the Organization of Petroleum Exporting Countries and its allies, a group collectively known as OPEC +, prepare to relax the production curbs of 2 million barrels a day from Saturday.

“Despite the resilient and limited nature of the oil price in recent weeks, the increase in global demand and the increase in OPEC + production raises the question of whether the market can absorb additional barrels,” said Michael Tran, analyst at commodities at RBC Capital Markets, in a note.

“The marginal barrels continue to find buyers, but the prospects seem increasingly challenged and the indication of the bullish potential for the Norwegian field Johan Sverdrup over 470,000 barrels per day is another headwind,” said Tran.

Oil maintained earnings after oil service company Baker Hughes said the number of U.S. oil rigs dropped from 1 to 180 this week.

Analysts said oil was supported by a collapse of the dollar, with the ICE US Dollar DXY index,
+ 0.46%,
a measure of the currency against six major rivals, dropping to a two-year low this week and slumping more than 4% in July, well on its way to its biggest monthly decline since September 2010, according to FactSet. The index rebounded on Friday, up 0.3%. A weaker dollar can support commodities that are priced in the unit, making them cheaper for users of other currencies.

RBU20 September gasoline futures,
-1.08%
it fell 1.6% to $ 1.1711 per gallon, while September’s oil heating rose 1% to $ 1.224 per gallon.

Natural gas futures for September NGU20,
-0.71%
it fell 3 cents, or 1.6%, to end at $ 1,799 per million British thermal units.

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