Trump's Covid-19 diagnosis brings out the bears on crude

Singapore

CRUDE prices, already possessed by bears amid a supply glut and an elusive US stimulus package, were hammered on Friday as uncertainty reigned on news that US President Donald Trump has tested positive for Covid-19.

Brent, the global benchmark, and US crude West Texas Intermediate (WTI) were each down 2.9 per cent to US$39.80 and US$37.60 a barrel respectively around midday in Asia on Friday. This was about two hours after Mr Trump tweeted that he and the First Lady Melania Trump had tested positive for the coronavirus and will begin a period of quarantine.

Both benchmarks have dropped more than 7 per cent since Monday, their second consecutive week of decline.

Jeffrey Halley, Oanda's senior market analyst for the Asia-Pacific, said: "The overall picture is one of falling consumption and ample supplies in the market, which has stopped oil's rally in its tracks and threatens to move prices lower again. President Trump and Covid-19 are another spanner in those works."

He added: "Much will depend now on whether Covid-19 has spread to the wider US government and Senate leadership, a situation that investors should be monitoring over the coming days. The potential paralysis of government would be a strong negative for financial markets."

Oil prices started the week on the backfoot, led by worries of demand shortfall as the world continues to grapple with the tough trade-offs between the economy and fighting the virus.

Another dampener: Renewed fears of a resurgence of the virus in several European countries, with the winter flu season looming, could hamper re-opening efforts and hurt energy demand.

Rising crude production from Iran and Libya - even as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) ease production curbs in the months ahead - is also posing a viable threat to any rebalancing in the oil market.

The strengthening of the US dollar, whose sharp slide through July and August was a key pillar of support for crude prices, has compounded the factors that sent the Brent below the key psychological mark of US$40 a barrel.

The technical picture for Brent crude looks "perilous" at the moment, said Mr Halley, adding that a fall through US$39 a barrel could signal further losses to US$37 and $35 a barrel.

Amid grim macro data, the political posturing or grandstanding between the US House speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on a relief package dashed hopes late in the week that a bipartisan bill would come through. The markets had earlier anticipated a pre-election stimulus deal after the last round of talks collapsed in early August.

In the absence of supportive fundamentals, such posturing makes no difference to the oil markets, said Mr Stephen Innes, AxiCorp's chief market strategist. He added that crude prices will only move higher if a fiscal deal is reached.

That possibility looks remote to some. Mr Halley said that Mr Trump's diagnosis has further reduced the likelihood that a relief bill could materialise.