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August 6, 2020 3:00 PM, EDT

Oil Seesaws With Demand Woes Offsetting Tighter Supply Picture

Crude oil storage tanks stand outside Midland, Texas.Crude oil storage tanks stand outside Midland, Texas. (Matthew Busch/Bloomberg News)

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Oil swung between gains and losses as uncertainty over the prospect of a U.S. virus relief bill that could boost fuel consumption offset signals of tightening global supply.

House Speaker Nancy Pelosi told reporters that Democrats and the White House are making progress in virus-relief negotiations, which is seen by many as the last remaining hope for spurring U.S. demand in the waning days of the summer driving season. Meanwhile, Iraq will cut production in August by an additional 400,000 barrels a day to compensate for missing its production target in previous months, state oil-marketing organization Somo said.

“[Passage of a stimulus bill] should help implement a floor on crude oil,” said Phil Streible, chief market strategist at Blue Line Futures in Chicago. “An additional round of stimulus might provoke more people to go out and travel,” supporting gasoline demand.

WTI futures struggle to rally beyond a five-month high amid demand woes.

Iraq’s pledge to further reduce output comes as Saudi Arabia cut pricing to Asia and Europe less than expected and left prices for the U.S. unchanged at the highest levels in months.

Oil is testing the upper bound of its recent trading range, where futures in New York have struggled to rally far beyond $40 a barrel. U.S. crude stockpiles falling for two straight weeks and a weaker dollar have provided support for prices, but rising coronavirus cases are continuing to weigh on sentiment. The drop in U.S. gasoline demand is going to get worse, according to Standard Chartered, with analysts saying the decline in August from year-ago levels will get steeper.

”Gasoline demand remains subdued,” said John Kilduff, a partner at Again Capital. “Even when you get some rays of hope, there’s still this weight on the market that’s going to prevent the gains from holding up.”

In physical markets, Mars Blend, a high-sulfur crude, rose to as much as $1.35 a barrel above Nymex WTI futures this week, the widest premium in about a month, but has eased off slightly in the past three sessions. Heavy Louisiana Sweet crude climbed 35 cents to $1.670 a barrel over Nymex oil futures Aug. 6, the largest premium in almost two weeks.

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