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BP share price could fall further as oil prices dip after Covid-19 returns in US

The oil and gas major closed 4% lower on Thursday after oil prices declined due to the resurgence of the coronavirus in the US, prompting investors to worry that a second wave will dry up demand.

BP closed 4% lower on Thursday after oil prices fell by as much as 3% as investors grow increasingly concerned that renewed lockdowns in the US due to a second wave of Covid-19 cases could once again dry up demand for fuel.

‘Gasoline stocks have lots to do with sheltering the oil price as they declined by amounts that were not expected and showed that road fuel demand is becoming robust again. Such news would normally lift the market, but under the current conditions they just help oil prices largely maintain their levels, instead of falling much by Covid-19-related negativity,’ Louise Dickson, Rystad Energy oil markets analyst, said in a note.

‘Covid-19 cases continue to increase in the US and traders wonder when they will see an end of this, when the trend will change. But as the US, Brazil and other countries continue to get hammered by Covid-19, demand is at stake,’ she added.

Brent crude slides as oil demand concerns grow

Brent crude is down 1.5% to $42.60 per barrel at the time of publication, while the US West Texas Intermediate (WTI) is 2.4% lower at $39.92 a barrel.

‘Given the volatility that still remains in the oil market it is curious that the oil price itself is so steadfast and tied down to about US$40/bbl,’ Dickson said. ‘Even after US inventories built by 5.7 million bbl (bringing stockpiles to yet another record high), traders barely flinched.’

‘In terms of supply, we still see continued compliance from OPEC+ signatories, who likely fulfilled production cut quotas by nearly 100% in June. We await the next JMMC meeting on July 15 for further clues on oil market management strategy. If it becomes more evident a second wave of Covid-19 will have a negative impact on oil demand, OPEC may step in to decide to keep deeper cuts into August, instead of increasing the group's production by a planned 2 million bpd,’ she added.

Brent gradually on the rise, yet gains slow

Brent crude has continued its ascent, with the price on the rise since Tuesday’s low. However, we are yet to break through the $43.71 level to continue the uptrend, with the price finding difficulty at the $43.48 mark, according to Josh Mahony, senior market analyst at IG.

‘A rise through that level should kick-start the rally once more, with a subsequent move towards the $43.71 likely,’ he added. ‘However, to the downside a move back through the likes of $42.90, and $42.50 would bring about a more bearish outlook for the short term.’

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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