(Updates with the price move, Commerzbank/EIA reports, and general market commentary from the first paragraph.)
Crude oil fell as growth in demand for oil -- the most important long-term factor influencing prices -- could falter amid concern escalating Sino-US political tension and elevated levels of daily COVID-19 case count risk undermining improvement in the world's largest economy.
West Texas Intermediate futures dropped by 0.6% to $40.83 intraday, and its international counterpart, Brent, slid by 0.9% to $42.94, failing to capitalize on the weakness in the dollar, which slumped to its lowest level in more than two years against the euro at 1.16. Oil was also soft as data compiled by Baker Hughes (BKR) showed on Friday the US oil rig count posted its first weekly increase in 19.
Renewed US-China tensions are likely to put additional strain on trade relations between the world's two largest economies, a report from Commerzbank said on Friday. China ordered the US to close its consulate in Chengdu, retaliating after a similar move by the US earlier this week to shut down the Asian nation's consulate in Houston.
Data compiled by Johns Hopkins University showed more than 70,000 new coronavirus cases per day have been recorded in the US in recent days, with over 1,000 people dying each day. A worsening of the pandemic could put at risk the recent improvement in the economy. In its latest reading earlier this week, the US jobless claims rose for the first time in almost four months as an easing of lockdown measures was halted across several states to stem the health crisis.
"Concerns about demand have returned to the oil market," Eugen Weinberg, head of commodity research at Commerzbank, said in the report. "OPEC-plus has set in motion a gradual withdrawal of the massive production cuts from August and will not be able to quickly reverse this decision."
On Wednesday, the Energy Information Administration said US crude stockpiles surged by 4.9 million barrels during the week that ended July 17, surprising the market with a build as the average analyst forecast had called for a drop in inventories.
Meanwhile, new homes sales jumped 14% month-on-month in June to 776,000 on a seasonally adjusted annual pace, beating the consensus on Capital IQ for 700,000. IHS Markit data showed the flash manufacturing purchasing managers' index for June climbed to a six-month high of 51.3, while the composite climbed to 50 from 47.9 in May, a positive for oil demand.
The US oil rig count rose by one to 181 during the week that ended July 24, recording its first weekly increase in 19, according to Baker Hughes. The combined oil and gas rig count for the US, which stood at 793 on March 6, slipped by two to 251 last week. Gas rigs fell by three to 68.
In Canada, the oil rig count rose by four to 10, and the gas count climbed by six to 32 during the period under review. As a result, the aggregate count for North America increased by eight to 293, compared with 1,073 a year earlier, the data showed.
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