Oil drops on sharp uptick in coronavirus cases globally

Oil prices slid on Monday as sharp spikes in new coronavirus infections around the world forced some countries to resume partial lockdowns, raising concerns about the pace of economic recovery and fuel demand.

Brent crude had dropped 44 cents, or 1%, to $40.58 a barrel by 0917 GMT, and U.S. crude was 36 cents, or 1%, lower at $38.13.

“Both contracts are coming under stronger pressure this morning as the spectre of lockdowns returns,” said JBC Energy.

The death toll from COVID-19 surpassed half a million people on Sunday, according to a Reuters tally.

Countries like the United States, India and Brazil are experiencing a resurgence in infections, leading authorities to partially reinstate lockdowns, in what experts say could be a recurring pattern in the coming months and into 2021.

“Looking ahead, anxiety is likely to remain heightened as the epic fight against the coronavirus pandemic continues. This spells bad news for risk assets (such as oil) which will inevitably remain under pressure,” said Stephen Brennock of broker PVM.

Oil prices were also under pressure from poor refining margins and high inventories, analysts said.

Still, Brent is set to end June with a third consecutive monthly gain after major global producers extended an unprecedented 9.7 million barrels per day supply cut agreement into July, while oil demand improved after countries across the globe eased lockdown measures.

U.S. and Canadian energy firms have cut the number of oil and natural gas rigs operating to a new record low even as higher oil prices prompt some producers to start drilling again. 

“No massive investments are likely to be made in the foreseeable future given the gigantic mountains of debt and the considerable financial risks,” said Commerzbank analyst Eugen Weinberg.

U.S. shale oil pioneer Chesapeake Energy Corp filed for bankruptcy protection on Sunday as it bowed to heavy debts and the impact of the coronavirus outbreak on energy markets. 

Investors will be keeping a close eye on economic data this week that will indicate the shape of economic recovery.

Later on Monday, inflation data from the euro zone’s biggest economy, Germany, will be released. In the United States, ISM manufacturing index is expected on Wednesday and payrolls on Thursday. Federal Reserve Chair Jerome Powell is testifying on Tuesday.