By Elizabeth Low and Grant Smith
The manager of a $500 million oil exchange-traded fund in Hong Kong said its broker refused to let it increase holdings of crude futures. S&P Global Inc., which is behind the most closely followed commodity index, said it will roll West Texas Intermediate futures for July into August, while the United States Oil Fund LP said it will halve holdings in the July contract.
Last week, crude rallied almost 50% in three days on early signs of improving consumption and the start of output curbs from OPEC+ and other producers.
While there are signals the plunge in demand might have bottomed out in some markets, traders believe it’s likely to take more than a year and perhaps longer to return to pre-coronavirus levels.
Even with fuel use recovering, the market will still need to digest the extra inventory dumped by the Organization of Petroleum Exporting Countries last month. OPEC production surged by the most in almost 30 years in April as members waged a price war, and kept supplies high even after reaching a cease-fire in the middle of the month.
“The market is having a bit of a reality check this morning,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen. “The fundamental outlook has improved, with supply cuts meeting a pick-up in demand. But given the risk that the global economic outlook will continue to deteriorate, it is much too soon to begin speculating about a recovery.”
WTI for June delivery declined 8% to $18.20 a barrel on the New York Mercantile Exchange as of 10:47 a.m. in London.
Brent for July settlement fell 2.6% to $25.75 a barrel on London’s ICE Futures Europe exchange after advancing 23% last week. The price of Dated Brent, a reference for two-thirds of the world’s physical crude, was $19.36 on Friday, according to traders monitoring prices from S&P Global Platts.
Algerian Energy Minister Mohamed Arkab, who holds OPEC’s rotating presidency, called on members of the cartel to implement more than 100% of their agreed output cuts under the deal that took effect from May 1. There’s evidence production is also falling in countries which are not party to the OPEC+ deal. In the U.S., the world’s largest producer, the oil rig count fell for a seventh straight week.
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