Oil struggles to hold 5-month high amid pandemic worries

An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil prices hovered near five-month highs on Thursday as support from a weak dollar and Iraq's planned production cuts counteracted bearish sentiment about fuel demand, pushing the benchmarks in and out of positive territory.

Brent crude was up 9 cents at $45.25 a barrel, while West Texas Intermediate crude fell 24 cents, or 0.57%, to settle at $41.95 after a four-day streak of gains.

"It's very choppy today, rallying on Iraq production cuts," said Phil Flynn, senior analyst at Price Futures group in Chicago.

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.

Concerns remain that demand is depressed due to an economic slowdown due to the coronavirus, he said.

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

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

A weaker U.S. dollar was also supportive for 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% Thursday after falling for two sessions, but stayed near two-year lows.

Still, oil investors remain wary of rising U.S. refined product inventories at a time when U.S. 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 $42 a barrel from $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 U.S. unchanged from the previous month.

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