Oil drops more than 1% as rising Covid-19 cases spark demand fears

An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia.

Simon Dawson | Bloomberg | Getty Images

Oil prices fell around 1% on Tuesday, as U.S. lawmakers prepared to wrangle over an economic stimulus package and investors worried about a rise in coronavirus cases worldwide.

Brent crude futures fell 19 cents, or 0.44%, to $43.22 a barrel, while West Texas Intermediate crude futures settled 56 cents, or 1.35%, lower at $41.04 per barrel.

U.S. Republicans unveiled a new coronavirus relief proposal on Monday, four days before millions of Americans lose expanded unemployment benefits. On Tuesday, they faced difficult talks with Democrats on how best to recover from the coronavirus pandemic.

"There's concern with the stimulus out of Washington, which is critical to the oil complex and to supporting demand, especially for gasoline," said John Kilduff, partner at Again Capital LLC in New York. Kilduff added that the longer the talks drag out, the more it will weigh on market sentiment.

Also a negative for prices, U.S. consumer confidence ebbed in July amid a flare-up in COVID-19 infections across the country. Cases worldwide have risen to around 16.57 million people.

Investors are awaiting the outcome of the U.S. Federal Reserve's policy-setting panel meeting on Tuesday and Wednesday. The panel is expected to reiterate that interest rates will remain near zero for years to come.

This month, Brent crude has fallen deeper into contango , a market structure in which the future price of the commodity is higher than the spot price, encouraging a build-up of inventories.

October prices were as much as 53 cents per barrel above September levels, compared with a 1 cent difference in early July.

"This suggests that the tightening we were seeing in the market has eased somewhat, with the demand outlook more uncertain given the resurgence of COVID-19 cases in some regions," said Warren Patterson, ING's head of commodities strategy.

Industry data on U.S. stockpiles is due later on Tuesday. Analysts polled by Reuters expect U.S. crude oil stockpiles were likely unchanged last week, while inventories of refined products probably declined.