Oil Drops as Demand Recovery Concerns Rise

(Bloomberg) -- Oil extended its decline below $40 a barrel and is set for the first monthly loss since April with the world’s biggest traders signaling a meaningful recovery in demand is some time off.

Global oil consumption could rebound from the virus-driven demand collapse in about 18 months, according to the head of Mercuria Energy Group, while Gunvor Group Ltd. and hedge fund manager Pierre Andurand predict a recovery may be closer to two years. Meanwhile, the American Petroleum Institute reported U.S. crude stockpiles declined last week, while Cushing and gasoline inventories rose, according to people familiar. Government data is due Wednesday.

Oil is struggling to hold above $40 a barrel as a resurgence of coronavirus cases across major economies raised doubts about a sustained rebound in demand. The market is also contending with rising supply from Libya to OPEC+, with Russia the latest member of the group likely to exceed its quota.

“The oil complex remains focused on a deteriorating prognosis for winter demand on the back of the virus surge headlines,” said Vandana Hari, founder of energy consultancy Vanda Insights in Singapore. “The gradual restart of production in Libya is further weakening the outlook on fundamentals.”

Daily consumption is still 4 million to 5 million barrels a day below where it was expected to be before the pandemic, Russell Hardy, the chief executive of trader Vitol Group, said at the FT Global Summit on Tuesday. Ben Luckock, co-head of oil trading at Trafigura Group, said at the gathering that it was “very hard to be bullish on the oil price now and into Christmas.”

Meanwhile, U.S. crude stockpiles dropped by 831,000 barrels last week, while inventories at the storage hub of Cushing expanded by 1.61 million barrels, according to the API. Gasoline supplies rose by 1.62 million barrels, which would be the first increase in eight weeks if confirmed by the Energy Information Administration on Wednesday.

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