Oil fell the most in a week with a sluggish U.S. labor market compounding concerns that demand will remain weak.
Futures in New York declined by 0.8% on Thursday, retreating from a five-month high. Applications for U.S. unemployment benefits unexpectedly increased last week, boding poorly for fuel consumption as millions of Americans remain out of work.
Magnifying the dour view for a pickup in demand, minutes from the U.S. Federal Reserve said the pandemic would weigh heavily on economic activity. OPEC+ also warned at a meeting Wednesday that the pace of the demand rebound was slower than expected and at risk from a prolonged second wave of the coronavirus.
U.S. benchmark futures have rebounded from negative territory in April, but are still having difficulty rallying past the mid-$40 a barrel range. While U.S. government data this week showed shrinking stockpiles, the demand picture remains murky as countries struggle to contain surging coronavirus infections. Energy Aspects Ltd. lowered its global jet fuel demand forecasts for August and September, citing slower than anticipated growth in Europe, Asia, and the U.S.
“With all the bullish headlines that we’ve seen over the last weeks regarding inventories,” the lack of a stronger rally in prices is a troubling sign, said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “Crude fails to break to the upside and you’re in a contango market, so the risk is to the downside.”
Brent’s prompt spread -- the difference between the prices of the front-month contract and that of the following month -- weakened to its widest contango structure since May, signaling oversupply.