Oil near $40 with Opec+ unwinding output cuts

Oil was steady near $40 a barrel as Opec+ producers started supplying more crude to a global market where many countries are still struggling to contain the novel coronavirus.

The Organization of Petroleum Exporting Countries and its allies will pump about 1.5 million barrels a day more this month than in July as they started to unwind their historic virus-driven output curbs, with Russia already having lifted its production slightly last month. At the same time, diesel sales in India were down 21 per cent on the previous year in July, a sign of the stuttering demand recovery in one of the world’s largest consumers.

Oil has been stuck in a narrow band since June, with rising virus infections in many countries increasing concerns about a renewed hit to the global econ

omy. It’s a precarious time for producers to be adding more supply, with Royal Dutch Shell Plc and Exxon Mobil predicting there may not be a full demand recovery until next year.

“As Opec+ begins to raise its

production, the economic outlook is still uncertain and largely tied to the evolution of Covid-19,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas. “Concerns appear to be developing that a rise in Opec+ production will coincide with an uneven recovery in oil demand.”

There’s growing evidence that the recovery in oil demand is running out of steam, Jpmorgan Chase & Co analysts including Natasha Kaneva wrote in a report. With travel indicators appearing to have stalled, there’s a chance global oil consumption could find a new normal at about 90 million barrels a day, according to the report, down from about 100 million previously.

Supply from Opec+ will be increasing as virus cases accelerate in California, a lockdown is being reimposed in Manila, and Australia’s second-biggest city of Melbourne institutes a curfew to stem the spread.