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Oil is set to eke out a monthly gain, yet futures lost steam on July 31 amid threats that the market will soon become oversupplied.
While deep production curbs by the Organization of Petroleum Exporting Countries and its allies have helped oil rebound from its plunge below zero in April, the cuts are ending at a time when the coronavirus pandemic is still ravaging demand. In fact, ExxonMobil Corp. said it only sees an oil consumption recovery well into 2021.
Meanwhile, U.S. shale producers are signaling supply will come roaring back over the next few months with futures near $40 a barrel. ConocoPhillips said this week that it will restart most wells that were shut by September.
“The market’s indicating that it wants to see if the extra supply just ends up going into inventory or are we going to see signs of demand recovery,” said Gene McGillian, vice president of market research at Tradition Energy.
Oil’s recovery has been caught in a rut with the pandemic limiting travel during the usually active summer driving season. Exxon and Chevron Corp. posted the worst losses in a generation as the virus combined with a global crude glut battered their businesses.
“The big worry is that we’re about to go into August and this is the last two weeks or so of potential driving vacations,” said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis. “You’ve had depressed demand for gasoline and it’s probably not going to get a whole lot better from here.”
OPEC+ plans to return about 1.5 million barrels a day to the market next month after cutting global supply by roughly 10% when demand plunged.
Meanwhile, the Senate left Washington for the weekend after a fourth day of negotiations yielded little substantial progress on narrowing differences between Republicans and Democrats on a plan to bolster the coronavirus-ravaged U.S. economy.
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