(Bloomberg) — Oil held firm in early Asian trading, supported by expectations for a dovish message from the U.S. Federal Reserve later this week as the pandemic continues to cast doubt on the strength of an economic recovery.
Futures in New York were up 0.1%, after rising 0.8% on Monday. Equities strengthened on the possibility that a resurgence in global coronavirus cases will push Fed Chairman Jerome Powell to signal Wednesday that rates will stay near zero for longer. Meanwhile, the Bloomberg Dollar Spot Index weakened for a second session.
Behind headline prices there are signs that the oil market is getting weaker. The shape of the crude futures curve is one key indicator: both West Texas Intermediate and Brent’s prompt spreads are trading in contango, with Brent’s in the largest contango structure since May.
futures have been trapped in a narrow trading range around $40 a barrel since early June, with global virus cases surpassing 16 million, crimping the outlook for a swifter demand recovery. Oil parked in floating storage is 244% higher than a year ago, according to Vortexa data, and still the OPEC+ alliance is preparing to ease unprecedented production cuts in a matter of days.
On a brighter note, there are signs that the recent surge in virus infections across U.S. southern states is starting to ease, although a fresh acceleration in cases from China to Spain and Germany underscores the difficulty of curbing the pandemic.
Meanwhile, governments continue to step up stimulus efforts to shore up their economies. In the U.S., Senate Majority Leader Mitch McConnell and other top Republicans are set to release a series of bills that represent the $1 trillion GOP plan for a new virus stimulus package after the Senate convenes Monday at 4:30 p.m. in Washington.
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