(Updates with the price move, EIA/Commerzbank reports, and general market commentary from the first paragraph.)
US crude headed for its first weekly drop in five even as the dollar slumped to its lowest in almost two years following a deeper-than-expected contraction in the US economy and as disunity in the Organization of the Petroleum Exporting Countries fanned supply risks.
West Texas Intermediate futures, which fell by 0.3% earlier in the session, climbed by 0.6% to $40.14 intraday. For the week, the price declined by about 2.4% while the dollar depreciated by 0.5% against the euro to $1.179, its weakest level since September 2018. As oil is priced in dollars, the two share an inverse correlation, implying a weaker greenback is oil-positive.
Iraq, committed to reducing its output by an additional amount to offset its previous overproduction, exported 3.15 million barrels per day in July, which is 80,000 barrels per day more than it did in June, according to a report from Commerzbank. Angola, also a member of OPEC, is expected to miss its production targets set by the cartel to control supplies.
The US economy contracted at a record annualized 32.9% in the second quarter while initial jobless claims in the country hit hard by coronavirus infections rose for a second week, calling into question the sustainability of the improvement in economic data such as retail sales and consumer confidence.
“A renewed supply surplus on the oil market is likely to weigh more heavily on prices,” Eugen Weinberg, head of commodity research at Commerzbank, said in the report. “At the same time, the recovery of demand seems to be slowing.”
An agreement between OPEC and non-OPEC producers led by Russia to jointly cut 9.7 million barrels of oil per day comes to an end Friday following a one-month extension of the deal from June. The reduction in daily supplies will be tapered in August to about 7.7 million barrels per day, in line with a pact announced in the second quarter.
The COVID-19 case count is surging not only in the US, India, and Brazil but also in countries such as the UK where the near term trend has been down recently. Britain is said to have reported its highest number of new COVID-19 infections in more than a month on Thursday, with Prime Minister Boris Johnson saying a resurgence in some European countries showed the pandemic was not over.
Meanwhile, the US oil rig count fell by one to 180 during the week that ended July 31, recording its 19th weekly decline out of 20, according to data compiled by Baker Hughes Friday. The combined oil and gas rig count for the US, which stood at 793 on March 6, was flat at 251 last week. Gas rigs rose by one to 69.
In Canada, the oil and gas rig counts rose by one each to 11 and 33, respectively, during the period under review. As a result, the aggregate count for North America increased by three to 296, compared with 1,079 a year earlier.
On Wednesday, the US Energy Information Administration said crude stockpiles plummeted by 10.6 million barrels during the week that ended July 24. That compared with a forecast for an increase of 357,000 barrels in a Reuters survey of analysts.
Brent futures rose by 0.8% to $43.27 intraday.
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