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Oil Falls With Equities While Volatility Drops to a 5-Month Low


By Alex Longley

(Bloomberg)Oil slipped along with equities and a strengthening dollar, while crude continued to trade in a narrow band.Futures in New York fell below $41 a barrel, a level that’s anchored prices for much of the week, with market volatility now at its lowest level in five months. U.S. equity futures dropped and European stocks fell to a three-week low on the busiest earnings day of the season. Meanwhile, government data showed the American economy contracted at a record pace in the second quarter.

WTI volatility at its lowest level in months

Despite oil’s lack of volatility, risks cloud the outlook for the coming months. The Federal Reserve sees the U.S. economy on an “extraordinarily uncertain” path, while Royal Dutch Shell Plc said it’s currently impossible to predict the direction of oil prices. The market remains caught between output cuts from some of the world’s biggest producers and resurgent waves of coronavirus.

“Positive and negative factors still appear balanced on the oil market, with concerns about weak demand being offset by the voluntary OPEC+ production cuts,” said Eugen Weinberg, head of commodities research at Commerzbank AG.

Prices
  • West Texas Intermediate for September delivery fell 1.4% to $40.68 a barrel as of 8:48 a.m. in New York
    • The shape of the WTI futures curve shifted this week, with nearer contracts trading at bigger discounts to later-dated ones, signaling concern about oversupply
  • Brent for September settlement declined 1.2% to $43.23

With OPEC+ starting to bring supply back to the market, Saudi Arabia is expected to cut its official prices to Asian customers for the first time since the recovery in oil prices began, according to a Bloomberg survey. The change underscores crude’s struggle to break far beyond $40, with concerns growing that August could see the market tip back into oversupply.

In the U.S., the economy suffered its sharpest downturn since at least the 1940s in the second quarter as the pandemic ravaged businesses across the country. Gross domestic product shrank at a 32.9% annualized pace, the Commerce Department’s initial estimate showed.

Other oil-market news
  • Shell and Total SE were saved from what many feared would be the worst quarter ever for the oil and gas industry, thanks to their mammoth trading operations. But Italian oil giant Eni SpA reported a loss and announced a dividend cut.
  • Shale explorers Concho Resources Inc., WPX Energy Inc. and QEP Resources Inc. signaled a grim second half for the U.S. oil patch just hours after President Donald Trump arrived in the Permian Basin championing “American energy dominance.”
  • Adnoc, the UAE state-owned producer, may cut the official selling price of its flagship Murban crude by 90 cents a barrel for September sales, according to the median estimate in a Bloomberg survey of traders.


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