In what is becoming something of a pattern as the market digests COVID data from over the weekend, oil plunged on Monday only to be reflated by continued optimism that a vaccine for the novel coronavirus will be ready for production this year.
All the while, U.S. production shows few signs of coming back, Friday rig data from Baker Hughes showed a -1 w/w drop in oil rigs to 180 even as we are well into the stabilization and recovery cycle in oil prices. But the offset is the COVID-19 headlines, which are adding to pressure ahead of the return next month of some supply as the OPEC+ production cuts begin to taper.
Oil prices are trading off inter-session highs as bullish market aspirations will continue to be hindered by concerns about the coronavirus's impact on the global economy and oil demand. In the main, traders are concerned that Los Angeles and Chicago are heading back towards stay-at-home notices, while Hong Kong reported a record number of new virus cases.
Indeed, oil markets do not have the luxury of looking through the rise in COVID and gain the same immediate sentiment boost from a vaccine or, for that matter, government stimulus that the stock markets receive. When it comes to oil demand, governments cannot bridge the downside shift in gasoline demand, as large driving states remain in soft lockdown. While OPEC provides an enduring backstop, the pace of oil price improvement in the face of real virus demand risks will likely remain sluggish, suggesting, unless the epidemic curve flattens and lockdown are rolled back, there remains more considerable downside than upside price risk through the near-term contract.
Flooding in some parts of southern China, which likely influenced the June trade balance data, has started to impact the mainland's oil market demand as domestic refinery run rates fall, which are possibly triggering China to sell oil from storage into regional markets. Indeed, this brings unwelcome focus to the ongoing problem of high global inventories and could limit the upside for oil even if worries about China's slowing demand turn out to be overblown.
However, OPEC+'s momentous action has diminished the risk for the maximal downside scenarios for oil, but challenges remain on demand and supply.
Lastly, Google (NASDAQ:GOOGL)'s latest mobility numbers are not showing a massive change. Two things stand out, though. Firstly, although there has been a moderation in U.S. mobility, it has not, on the whole, fallen off a cliff. However, in light of the surge in COVID-19 case counts in the U.S., this could either be taken positively in terms of impact on the economy or negatively in that the U.S. could struggle to get a handle on virus outbreaks.