Oil Prices Retreat Amid Persistent Covid Concerns

Oil prices dipped on Friday on the latest wave of concern that Covid-19 will continue inflicting economic damage as well as end-of-month profit-taking. In London, the front-month contract for June, which expired on Friday, retreated by $1.33 to $67.25 per barrel, while the more actively traded July contract lost $1.29 to end at $66.76/bbl. On Nymex in New York, the June contract for West Texas Intermediate (WTI) shed $1.43 to finish the week at $63.58/bbl. For the month, however, the oil benchmarks were still up by over $3 on an improving outlook for fuel consumption this summer in places like the US, China and the UK. For the month, Brent rose $3.22, or 5%, while WTI gained $4.42, or 7.4%. All About Demand Triggered by vaccine rollouts across the globe, oil prices had risen for four months from November, but retreated in March as Covid-19 infections persisted. In April, prices continued to seesaw, with demand hopes prevailing one session and pandemic scares dominating another (IOD Apr.28'21). This theme sharpened in recent days, with the runaway pandemic spread in India juxtaposed with bullish forecasts for the US and Chinese economies. But analysts say the latter is winning out. "In the worst case, India could lose half of its 4.8 million barrels per day of oil consumption temporarily and see a longer 'U-shaped' demand recovery than the 1 million b/d demand impact we project for May,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “But the Chinese and US oil demand recovery in the next three months alone will be above 1 million b/d." Gasoline Spotlight The May contract for RBOB gasoline ended on Friday, and on Monday the front-month will become the June contract, which is less than a penny more expensive than July. The curve could slip into contango next month, which would mean that June gasoline would actually be cheaper than July -- an oddity for US gasoline, the single largest product market in the world. “The specter of the front gasoline spread trading in contango going into the summer driving season is not a good demand indicator for motor fuel,” commented Robert Yawger of Mizuho Securities. Two years ago, ahead of the Memorial Day weekend, the official start of the summer driving season, the June/July RBOB spread was $2.07. “A lot is riding on the 'get out of the house and drive as much as you can' theme heading into summer driving season," said Yawger. "If that story does not live up to expectations, there could be a lot of gasoline left in storage as a result." Gary Peach, Albany