Oil edges higher on tighter supply, but rising Covid-19 fears limit gains

Oil prices edged higher on Monday as major producers cut crude output, but price gains were limited by worries that a rise in coronavirus infections worldwide might stall a recovery in fuel demand.

Brent crude was up 48 cents, or 1.1 per cent , at $42.67 a barrel by 11:45 a.m. EDT (1545 GMT). 

The West Texas Intermediate (WTI) crude contract for August, which became the days more active contract, rose 50 cents, or 1.2 per cent , to $40.33.

South Korea said for the first time that it was in the midst of a second wave of the coronavirus, keeping prices from rallying further.

The World Health Organization reported a record rise in global cases on Sunday, with the biggest increase coming from North and South America.

"We're just holding our breath and keeping our fingers crossed that the situation with the Covid won't worsen again," said John Kilduff, a partner at Again Capital Management in New York.

Both Brent and US contracts rose about 9 per cent  last week, supported by a recovery in fuel demand as lockdowns eased and economic activity resumed.Bank of America (BofA) Global Research has lifted its oil price forecast for this year and next as demand recovers while the OPEC+ output cut deal curtails supply and producers reduce capital expenditure.

Signalling a recovery in global markets and tighter supplies, Brent has moved into backwardation, where oil for immediate delivery costs more than supply later. The Organization of the Petroleum Exporting Countries and allies such as Russia, a group known as OPEC+, has yet to decide whether to extend a record supply cut of 9.7 million barrels per day (bpd) into a fourth month, so it runs to the end of August.Russia said that $40 to $50 a barrel is a fair price.