Oil Video 23.10.20.
Oil Stays Above The $40 Level As Virus Worries Are Offset By Hopes For Extension Of Current Production Cuts
Oil continues to trade above the psychologically important $40 level as traders bet that OPEC+ will extend its current production cuts for the first months of 2021.
Yesterday, Russian President Vladimir Putin signaled that Russia did not rule out extending current cuts in case oil demand does not recover. OPEC+ is set to increase its production by 2 million barrels per day (bpd) in January 2021, and the extension of current production cuts will provide meaningful support to the market.
Meanwhile, the situation with coronavirus continues to get worse in Europe. Yesterday, France recorded more than 41,000 new cases while UK and Spain reported more than 20,000 new cases.
This time, governments are trying to avoid full lockdowns which will crush the demand for oil, but the situation is getting worse and it is unclear whether European countries will manage to get by with half-hearted measures.
Recent PMI reports indicated that the virus has already put material pressure on the services segment in UK and EU, and problems in the manufacturing segment may follow if Europe fails to contain COVID-19. This scenario will be bearish for oil.
Libya’s War Factions Sign Truce
Libya, which is exempt from the OPEC+ production cut deal due to the civil war, has already managed to increase its oil production to 500,000 bpd.
The country aims to increase its oil production to at least 1 million bpd in the upcoming months, and this goal looks realistic as the country’s war factions have just signed truce.
According to the deal, the ceasefire would begin immediately while foreign fighters will have three months to leave the country. While political analysts have pictured the deal as fragile, it is obvious that all sides of the civil war are interested in the rebound of Libya’s economy which is impossible without a rebound in oil production.
Most likely, the market will soon have to absorb additional production from Libya at a time when the world economy is under attack from the second wave of the virus.
Interestingly, oil prices have managed to stay near the $40 level despite worries about demand and rising production in Libya, but it remains to be seen whether the market will be able to show strength in case additional negative catalysts emerge.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire