Oil settles below 5-month highs amid fuel demand worries

[NEW YORK] Oil prices hovered below five-month highs on Thursday, falling after a session in which bearish sentiment about fuel demand counteracted optimism about Iraq's supply cuts, pushing the benchmarks in and out of positive territory.

Concerns remain that demand is depressed by the economic slowdown due to the coronavirus pandemic, said Phil Flynn, senior analyst at Price Futures Group in Chicago.

"Everyone is waiting for the coronavirus relief package to come through to give a bounce to the economy," he said.

Brent crude settled down 8 cents at US$45.09 a barrel, while US crude fell 24 cents to US$41.95 after a four-day streak of gains.

Earlier in the session, planned output cuts from Iraq boosted the contracts.

Iraq said it would make an additional cut in its oil production of about 400,000 barrels per day in August to compensate for its overproduction over the past period under the Opec supply reduction pact.

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The two benchmarks rose to their highest since March 6 in the previous session after the US government reported a much bigger-than-expected drop in crude stockpiles.

A weaker US dollar was also supportive of oil prices as it makes dollar-priced oil cheaper for holders of other currencies.

The dollar index, which measures the greenback against a basket of six major currencies, logged its biggest monthly percentage fall in a decade in July, and a Reuters poll found analysts expected it to continue falling into next year.

The index was up around 0.1 per cent Thursday after falling for two sessions, but stayed near two-year lows.

Still, oil investors remain wary of rising US refined product inventories at a time when US central bankers said the resurgence in coronavirus cases was slowing the economic recovery in the world's biggest oil consumer.

"In the medium term the weak demand is likely to weigh more heavily than the positive sentiment (is supportive), which is why we expect prices to correct in the near future," Commerzbank analyst Eugen Weinberg said.

JPMorgan trimmed its oil demand forecast for the second half of the year by 1.5 million bpd, but raised its average Brent price forecast for the whole year to US$42 a barrel from US$40.

Saudi Arabia's state oil giant Aramco cut its September official selling prices (OSPs) for its Arab light crude for deliveries to Asia by 30 cents a barrel from August, and left its prices to the US unchanged from the previous month.

This briefly lent strength to the market, quelling previous fears that the producer would slash prices, spiking another price war, said Bob Yawger, director of Energy Futures at Mizuho in New York.

REUTERS