U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed lower last week, mostly on demand concerns over surging coronavirus cases in the United States and Europe, and the anticipation of a surge in Libyan crude supply. Russian President Vladimir Putin helped underpin the markets temporarily with comments about extending the OPEC+ output cuts.
The market finished lower, but didn’t “crash” on the news. Early in the week, the market hit a high of $41.90, challenging its five-week high at $42.02. The price action suggests traders are primarily reacting to uncertainty over demand. That includes dealing with more restrictions and shutdowns, whether the economy gets the stimulus to continue the recovery and whether a vaccine will be developed in a timely manner.
COVID-19 Cases Jump in US and Europe
Ahead of the weekend, the U.S. reported a record-breaking number of new coronavirus cases on Friday, continuing an alarming surge and stoking concerns from health experts that the nation could be in for a difficult winter.
The country reported more than 83,700 new COVID-19 cases on Friday, passing the last record of roughly 77,300 cases seen on July 16 as the U.S. grappled with outbreaks in Sun Belt states, according to data compiled by Johns Hopkins University.
“I think we’re in for a very hard stretch here,” Dr. Scott Gottlieb, the former U.S. Food and Drug Administration commissioner, told CNBC on Friday evening. “I think the winter is going to be very difficult.”
This news doesn’t bode well for future fuel demand or the overall economic recovery. Delaying the much anticipated fiscal stimulus is also likely to cause more issues with demand.
Libyan Output on the Rise
Libya’s National Oil Corp (NOC) has lifted force majeure on exports from the ports of Es Sider and Ras Lanuf, it said on Friday, adding that output would reach 800,000 barrels per day (bpd) within two weeks and 1 million bpd in four weeks.
Al Waha Oil Co, the NOC company that runs Es Sider, said the port would start operating again on Saturday with the first tanker expected within 48 hours.
Analysts at Bloomberg Intelligence see overall production reaching 1 million barrels a day by year-end.
Russia’s Putin: Rollover on Oil Output Curbs Possible
Russian President Vladimir Putin said on Thursday that Russia saw no need for now for global oil producers to change their existing deal on global supply, but did not rule out extending deep oil cuts for longer if market conditions warranted.
“We believe there is no need to change anything in our agreements, we will closely watch how the market is recovering. Consumption is on the rise.
“However, we do not rule out that we could keep existing restrictions on production, and not remove them as quickly as we had planned to do earlier,” Putin told a meeting of the Valdai Discussion Club.
I continue to see a rangebound trade over the near-term. With some analysts it’s all about, “COVID, COVID, COVID”. And all the demand issues that follow. That may have been the case when the pandemic first started in March. But it’s not the case at this time.
The governments are not going to shut down their economies this time around. There may be restrictions, but I don’t expect to see shutdowns. Nobody wants to see a lengthy recession.
Furthermore, OPEC+ has the power to control the supply. If prices start to fall because of lower demand then they can make adjustments to their production cuts.
The global oil market recovery may be slowing due to the second wave of the coronavirus outbreak, but it’s a bit premature to predict another bear market plunge.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire