MELBOURNE (Reuters) – Oil prices fell around 2% in early trade on Tuesday on worries that new clampdowns on businesses to stem surging coronavirus cases in California and other U.S. states could threaten the nascent recovery in fuel demand.

U.S. West Texas Intermediate (WTI) crude CLc1 futures slid 84 cents, or 2.1%, to $39.26 a barrel at 0138 GMT, while Brent crude LCOc1 futures fell 77 cents, or 1.8% to $41.95 a barrel.

Both benchmark contracts lost just over 1% on Monday.

California’s governor on Monday ordered bars to shut and restaurants, movie theatres, zoos and museums in the country’s most populous state to cease indoor operations as coronavirus cases and hospitalizations soared.

The state’s two largest school districts, in Los Angeles and San Diego, also said they would teach only online when school resumes in August.

California’s moves follow the recent reinstatement of some restrictions in other states, such as Florida and Texas.

“With the California soft lockdown now framing the picture, July could be an even more challenging month for oil than expected with even more demand woes emanating from coronavirus-linked uncertainty,” AxiCorp market strategist Stephen Innes, market strategist said in a note.

The market will be closely watching data on fuel consumption due later on Tuesday from the American Petroleum Institute industry group and on Wednesday from the U.S. Energy Information Administration.

Analysts estimate U.S. gasoline stockpiles fell by 900,000 barrels and crude oil inventories fell by 2.3 million barrels in the week to July 10, a preliminary Reuters poll showed.

With fuel demand growth hampered, the market will also be eyeing the next move from the Organization of Petroleum Exporting Countries and its allies, together known as OPEC+, whose market monitoring panel is set to meet on Tuesday and Wednesday.

Under their existing agreement, OPEC+ is set to taper its record supply cut of 9.7 million barrels per day to 7.7 million bpd from August through December.

Citi analysts said implementing the 2 million bpd increase in output from August could weigh on the market given the demand uncertainties, along with the potential for increased Libyan output, a return of 20% to 30% of curbed North American production and an end to China’s crude buying spree.

Reporting by Sonali Paul; editing by Richard Pullin

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