By Geoffrey Smith
Investing.com -- Crude oil prices drifted lower on Monday against a backdrop of data showing that the worldwide recovery in fuel demand is stalling due to a spate of localized flareups of the coronavirus that have have either led to restrictions on travel or suppressed the appetite for it.
By 10:20 AM ET (1315 GMT), U.S. crude futures were down 1.3% at $40.78 a barrel, while the global benchmark Brent was down 1.3% at $43.25 a barrel.
Gasoline RBOB Futures were down by more, losing 2.4% to $1.2260 a gallon.
The declines in energy products were at odds with many other commodity markets, which were supported by expectations that the Federal Reserve will signal a further loosening of monetary policy at its meeting this week.
Crude and refined products were both hit by anecdotal evidence that demand is faltering after a steady recovery since April.
“Globally, Google (NASDAQ:GOOGL) data confirm that global mobility peaked around July 3 at about 86% of the pre-virus base level and currently sits 2%-pts below the peak (84.6%),” analysts at JPMorgan (NYSE:JPM) pointed out in a research note.
The analyst team, led by Natasha Kaneva, acknowledged that while “two weeks don’t make a trend, they do merit attention.”
While the impact of reopening reversals in the U.S. has gained the most attention from analysts, a spate of localized outbreaks from Spain to Hong Kong and China and even Australia have all taken a cumulative toll on global demand.
By the same token, data from FlightRadar suggest that fuel demand from commercial aviation has also fallen for the last two weeks, after rising consistently since late April. A number of U.S. airlines including Southwest and American scaled back their programs to increase capacity in the fall schedules last week, and in Europe, the U.K.’s decision to impose a quarantine restriction on travelers returning from Spain is set to damage what was in any case only a partial recovery in flying.
On top of that, JPM analysts see a small, if likely brief, increase in U.S. output in the near term – an expectation corroborated by data from Baker Hughes on Friday showing the first weekly increase in drilling rig activity in the U.S. since March. The rise couldn't have been smaller: BH counted 181 oil rigs, up by one from the previous week. The overall number is still down nearly 80% from its peak two years ago.