Oil prices fell on Monday as concern grew that a record rise in global coronavirus infections could stall recovery in fuel demand, outweighing tighter supplies from major producers.
Brent crude LCOc1 was down $0.24, or 0.6%, at $41.95 a barrel by 1141 GMT. The West Texas Intermediate (WTI) crude contract for August CLc2, which became the day’s more active contract, fell $0.25, or 0.6%, to $39.58.
South Korea on Monday said for the first time that 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.
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.
Both Brent and US contracts rose about 9% last week, supported by a recovery in fuel demand as nations resume economic activity after easing lockdowns.
Bank of America (BofA) Global Research has lifted its oil price forecast for this year and next as demand recovers while the OPEC+ output cut deal curtails supply and producers reduce capital expenditure.
The bank now sees Brent averaging $43.70 a barrel in 2020, up from a previous estimate of $37. For 2021 and 2022, the bank forecasts average prices of $50 and $55 a barrel respectively.
“As we head into next year, we believe transportation demand could recover at a faster rate than we initially anticipated,” the bank said.
Signalling a recovery in global markets and tighter supplies, Brent has moved into backwardation, where oil for immediate delivery costs more than supply later. LCOc1-LCOc2
The Organisation 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 that $40 to $50 a barrel is a fair price.