Oil heading for weekly drop as coronavirus concerns mount

Brent is heading for a drop of 2%, while the US crude is on track for a decline of 1%

The International Energy Agency says Covid-19 has reshaped the energy industry and warned of a fragile oil market recovery. AFP

Oil prices edged higher on Friday but were set for a weekly decline due to mounting worries about the impact on fuel demand of a widespread resurgence in coronavirus infections, as well as some concern about the likely return of exports from Libya.

Brent crude was up 30 cents at $42.24 a barrel, while the US West Texas Intermediate rose 23 cents to $40.54.

Brent is heading for a drop of nearly 2 per cent this week with US crude on track for a decline of around 1 per cent. Both benchmarks are also heading for a monthly decline, which would be the first for Brent in six months.

"This month has not been kind to the oil market," said Stephen Brennock of oil broker PVM.

"Rising virus infections, renewed lockdowns, slowing economic recovery and stalled US stimulus talks have put the brakes on the fragile revival in fuel demand."

In the US, which has the highest death toll from the coronavirus pandemic and is the world's biggest oil consumer, unemployment claims unexpectedly rose last week suggesting an economic recovery is flailing and pushing down fuel demand.

The American fuel demand remains in the doldrums as the pandemic constrains travel. The four-week average of gasoline demand last week was 9 per cent below a year earlier, government data showed on Wednesday.

In other parts of the world, daily increases of coronavirus infections are hitting records and new restrictions are being put in place that will likely limit travel and fuel demand.

In India, throughput by crude oil refiners in August fell 26.4 per cent from a year ago, the most in four months, as fuel demand ebbed because surging coronavirus cases hindered industrial and transport activity.

In Libya, an oil tanker was loading a cargo on Thursday from one of three Libyan terminals that were reopened in recent days and more cargoes are expected to be lifted in the coming days.

However, analysts have questioned how quickly the country could ramp up supply.

"Fundamentally, nothing has changed to the supply side of the equation that is weighing on oil prices in the bigger picture," said Jeffrey Halley, senior market analyst at Oanda.