Oil Set for Weekly Gain

(Bloomberg) -- Oil in New York is poised for the biggest weekly advance since early July after U.S. stockpiles plunged further, but the market is facing more OPEC+ supply and still contending with virus-driven demand weakness.

Futures rose above $42 a barrel this week to the highest level in five months with support from a weaker dollar and as U.S. crude inventories posted the biggest back-to-back weekly decline in a year. OPEC and its allies are set to test the appetite for demand as they start returning some supply this month after historic cuts, although Iraq has pledged to trim its output further in August to compensate for missing its target in previous months.

Meanwhile, crude imports into China dropped in July from a record the previous month, with vessels delayed in unloading cargoes as ports became congested with tankers carrying cheaper oil purchased earlier in the year.

Oil is showing some signs of rising out of a tight range after being stuck near $40 a barrel since early June as surging coronavirus infections put a cap on a rally from below zero. A sustained recovery in consumption is still looking shaky, with Saudi Arabia cutting pricing to Asia for its main grade for the first time in four months -- although by less-than-expected -- as producers face pressure to reduce the cost of their crude.

“Concerns over continuing oil demand recovery remain in place,” said Vandana Hari, founder of Vanda Insights in Singapore, adding that the recent price rally is almost entirely driven by a weaker U.S. dollar. “The pandemic is not worsening, but it’s not becoming any better either.”

President Donald Trump, meanwhile, signed orders prohibiting U.S. residents from doing business with the Chinese owned TikTok and WeChat apps beginning 45 days from now due to national security risks, escalating tensions between the two world’s biggest economies. American and European equity futures fell.

Iraq, the second-biggest OPEC producer, will reduce production by an additional 400,000 barrels a day this month, according to state oil-marketing organization SOMO. The cuts come as OPEC+ pumps about 1.5 million barrels a day more in August than in July.

China’s crude imports in July dropped to 51.29 million tons, equivalent to 12.13 million barrels a day, down from 53.18 million tons in June, according to customs data released Friday.

--With assistance from James Thornhill.

To contact the reporters on this story:
Low De Wei in Singapore at dlow47@bloomberg.net;
Saket Sundria in Singapore at ssundria@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Ben Sharples, Andrew Janes

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