Oil prices drop on demand recovery fears amid U.S. virus surge

By Sonali Paul
MELBOURNE, July 14 (Reuters) - Oil prices fell around 2% in
early trade on Tuesday on worries that new clampdowns on
businesses to stem surging coronavirus cases in California and
other U.S. states could threaten the nascent recovery in fuel
demand.
U.S. West Texas Intermediate (WTI) crude CLc1 futures slid
84 cents, or 2.1%, to $39.26 a barrel at 0138 GMT, while Brent
crude LCOc1 futures fell 77 cents, or 1.8% to $41.95 a barrel.
Both benchmark contracts lost just over 1% on Monday.
California's governor on Monday ordered bars to shut and
restaurants, movie theatres, zoos and museums in the country's
most populous state to cease indoor operations as coronavirus
cases and hospitalizations soared. The state's two largest school districts, in Los Angeles and
San Diego, also said they would teach only online when school
resumes in August.
California's moves follow the recent reinstatement of some
restrictions in other states, such as Florida and Texas.
"With the California soft lockdown now framing the picture,
July could be an even more challenging month for oil than
expected with even more demand woes emanating from
coronavirus-linked uncertainty," AxiCorp market strategist
Stephen Innes, market strategist said in a note.
The market will be closely watching data on fuel consumption
due later on Tuesday from the American Petroleum Institute
industry group and on Wednesday from the U.S. Energy Information
Administration.
Analysts estimate U.S. gasoline stockpiles fell by 900,000
barrels and crude oil inventories fell by 2.3 million barrels in
the week to July 10, a preliminary Reuters poll showed.
With fuel demand growth hampered, the market will also be
eyeing the next move from the Organization of Petroleum
Exporting Countries and its allies, together known as OPEC+,
whose market monitoring panel is set to meet on Tuesday and
Wednesday.
Under their existing agreement, OPEC+ is set to taper its
record supply cut of 9.7 million barrels per day to 7.7 million
bpd from August through December.
Citi analysts said implementing the 2 million bpd increase
in output from August could weigh on the market given the demand
uncertainties, along with the potential for increased Libyan
output, a return of 20% to 30% of curbed North American
production and an end to China's crude buying spree.