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August 21, 2020 2:00 PM, EDT

Oil Set for Weekly Drop in Wake of Sluggish Global Economies

Oil pumping jacks operate in a Russian oilfield on Aug. 16.Oil pumping jacks operate in a Russian oilfield on Aug. 16. (Andrey Rudakov/Bloomberg News)

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Oil is poised for the first weekly decline this month as signs of stumbling recoveries in major economies from Europe to Asia threaten to delay a demand rebound.

Futures in New York fell as much as 3.2% on Aug. 21. Europe’s economy unexpectedly lost momentum this month, with the region battling to control a new spike in coronavirus cases. Meanwhile, a gauge of Japan’s service sector fell and continues to signal contraction.

“The U.S. jobless numbers were not good, and the data out of Europe and Japan is disconcerting,” suggesting oil prices may have risen too high “given where we are in this phase of the recovery,” said Michael Lynch, president of Strategic Energy & Economic Research. “The implication for demand is that it’s going to be a bit lower in the next couple months.”

WTI is set to halt its weekly winning streak as demand woes weigh.

Meanwhile, Libya’s National Oil Corp. said Aug. 21 that it welcomed the country’s new cease-fire agreement, and the nation should be able to resume exports when all of its facilities are freed from military occupation, threatening to unleash supply at a time when the OPEC+ alliance is easing output curbs.

U.S. benchmark crude futures hit a five-month high this week after a government report showed shrinking domestic crude and gasoline supplies. Yet, prices have since retreated with virus cases surging and cautionary signals emerging over the state of a global economic recovery. Italy reported new infections that were almost double the average for the past seven days, while South Korea may be heading toward a lockdown.

“Until we get a reopening in the economy, we’re not going to see any real price fluctuation in the oil market,” said Phil Streible, chief market strategist at Blue Line Futures in Chicago. “When you see an uptick in the economy, you’ll see a more optimistic view” for crude demand.

Still, China is signaling demand for U.S. crude. American oil exports to the country are set to reach a record next month in a sign that Beijing is stepping up purchases to meet its commitments under their trade deal. About 19 tankers have signed provisional bookings to load American crude for China in September, according to shipping fixtures.

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