OIL FUTURES: Crude settles lower as coronavirus spread hampers recovery

New York — Crude futures settled slightly lower June 23 as expectations of higher demand stemming from improved economic activity were offset by increases in coronavirus cases.

NYMEX August crude settled 36 cents lower at $40.37/b, while ICE August Brent settled 45 cents lower at $42.63/b.

In refined products, NYMEX July RBOB settled 81 points higher at $1.2994/gal, and July ULSD settled at $1.203/gal, down 1.56 cents.

Economic indicators were supportive for the oil complex. Equities and oil climbed early in the session after the White House confirmed that the US-China trade deal was still on.

Also supportive was the IHS Markit Purchasing Managers' Index, which showed a slowing of the US economic downturn in June as states began to lift lockdowns imposed to contain the coronavirus pandemic.

"Despite many firms noting a rebound in client demand, some stated that renewals and requests for new business were historically muted. The rate of contraction nevertheless slowed notably, with manufacturers in particular registering only a fractional decrease," IHS Markit said in a release. "The downturn in new business from abroad also slowed significantly, as clients in key export markets increased their buying activity amid looser lockdown restrictions."

That followed an increase in European PMI readings.

"France's composite PMI rose to a four-month high of 51.3 while the heavyweight economy Germany clocked 45.8, also a four-month high," said Mihir Kapadia, CEO of Sun Global Investments.

However a full quarter of economic data will be needed to assess the full impact of the pandemics, while "as new clusters in Beijing and the US have shown, another peak cannot be ruled out especially during the winter months," Kapadia said.

Refined products demand rises

Crack spreads have strengthened this month as the easing of restrictions is expected to bolster demand for refined products. The August ULSD crack spread against ICE Brent was trading around $8.56/b late June 23, down from $9.55/b June 17, but up from $6.24/b June 1.

The August RBOB crack spread against ICE Brent was trading around $11.73/b June 23, up from $7.08/b June 1.

Also, the global crude glut appears to have eased for now, causing the deep contango structure in both NYMEX WTI and ICE Brent to narrow.

According to S&P Global Platts Analytics, global crude inventories at 5.229 billion barrels June 18 were down 55 million barrels on the month. That decline was driven primarily by a drop in crude in transit, rather than onshore or floating crude storage.

Still, the crude structure was looking less bearish, as OPEC and non-OPEC producers have cut output. The ICE front-month Brent crude contract ending June 23 at a roughly $2.65/b discount to the twelfth-month contract, from a $15.37/b discount April 21.

An increase in coronavirus cases in some areas threatens the petroleum recovery, although it is unclear that states would impose similar lockdown measures to those seen in April and May even if the pandemic spreads.

US President Donald Trump's coronavirus health advisor, Dr. Anthony Fauci, warned June 23 that states are seeing a "disturbing surge" in infections, according to a CNBC report.

South Korean health officials on June 22 announced that the country was going through a second wave of coronavirus. Initially lauded as a success story, fresh clusters since May have led to warnings that the pandemic would continue for more months.

The World Health Organization said June 22 that coronavirus cases were soaring in major countries, with "worrying increases" in Latin America, especially Brazil.