Oil steady as a rise in virus cases counters tighter supplies

Oil prices were steady on Monday, supported by tighter supplies from major producers but held in check by concerns about a record rise in global coronavirus infections that could stall a recovery in fuel demand.

Brent crude rose 58 cents, or 1.4%, to trade at $42.77 per barrel. The West Texas Intermediate crude contract for August, which became the day’s more active contract, gained 42 cents, or 1%, to trade at $40.17 per barrel.

South Korea on Monday said for the first time it was in the midst of a second wave of the coronavirus. The World Health Organization reported a record rise in global cases on Sunday, with the biggest increase coming from North and South America.

“Infections are rising in key markets around the world and there are valid concerns that the world is in for a prolonged period of dealing with its consequences,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

Oil prices have been supported by a recovery in fuel demand globally as nations resume economic activity after easing lockdowns.

Signalling a recovery in global markets and tighter supplies, Brent has moved into backwardation, where oil for immediate delivery costs more than supply later.

Both Brent and U.S. contracts rose about 9% last week. But, after weeks of rising, prices of physical oil have begun to ease as the rally succumbs to the reality of poor refinery margins and brimming inventories, traders and analysts say.

“I find it more difficult for oil to move higher at this point, especially with the growing concern about second-wave contagion,” said Howie Lee, an economist at Singapore’s OCBC Bank.

In Canada and the United States, the number of operating oil and natural gas rigs fell to a record low last week, even as higher oil prices prompt some producers to resume drilling.

The Organization of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+, has yet to decide whether to extend a record supply cut of 9.7 million barrels per day (bpd) into a fourth month, so it runs to the end of August.

Russia said $40 to $50 a barrel was a fair price.