Oil slips 1% on demand worries, but posts best quarter in nearly three decades

The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019.
Angus Mordant | Reuters

Oil prices slipped on Tuesday amid rising COVID-19 cases and a possible return of Libyan oil production, which has slowed to a trickle since the start of the year.

The more-active September contract for Brent fell 0.3% to $41.70 a barrel, paring Monday's 92-cent gain. The August contract, which expires on Tuesday, fell 51 cents, or 1.2%, to $41.20.

West Texas Intermediate, the U.S. oil benchmark, slid 1.08%, or 43 cents, to settle at $39.27 per barrel.

Coronavirus cases continue to rise in southern and southwestern U.S. states. Northeastern states like New York and New Jersey doubled the number of states from which travelers face quarantine restrictions.

Fuel demand has recovered from the worst weeks of the outbreak in April and early May, but there is a risk that the rebound is cut off by the resurgence in virus cases.

"Sustaining the independent show of gasoline strength will be challenged by coronavirus headlines where news has seen a definite negative shift in recent weeks," Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.

Investors will be looking for signs of demand recovery in weekly inventory data due on Tuesday from the American Petroleum Institute industry group and from the U.S. government on Wednesday.

Libya is trying to resume exports, which have been almost entirely blockaded since January amid the country's civil war. The state's oil company is hoping that talks will put an end to a blockade by eastern-based forces in the country's civil war.

"If we do finally see a resumption in Libyan output, this would make the job of OPEC+ a little bit more difficult," said Dutch bank ING.

A Reuters poll of analysts showed expectations that oil prices will consolidate at around $40 a barrel this year, with a recovery gaining steam in the fourth quarter.