The prolonged pain of the pandemic is being felt across the oil markets this week as countries resume lockdown strategies and the world prepares for the US Presidential election. In Friday trading, Brent crude was priced just below US$38 with WTI above US$36 a barrel.
Brent crude is hitting lows seen earlier in October but falling below the psychological level of forty dollars will not help sentiment in the market. Both benchmarks fell more than 10 percent in a week, the worst performance in the past 6 months.
The second round of Covid-19 seems to be hitting Europe particularly badly with France, Germany and the UK introducing tougher restrictions and curbing movement of residents. No-one is expecting demand to fall back to April levels, but few expect to see any increase in coming months.
Crude inventories are on the rise in the US with close to 5 million barrels added to stockpiles, according to the American Petroleum Institute. This is the second week of rising inventories as demand for gasoline and crude stocks continues to fall. Gasoline inventories were up 2.5 million barrels last week.
Hurricane season continues in the US with Category 2, Zeta causing storm damage in southwestern Louisiana. Most of the major refineries and petrochemical infrastructure escaped being hit, but more than a million barrels were shut-in as a precaution.
News of Libyan production coming back on the market may cause some concern, but the country remains plagued with uncertainties and instability. Libyan exports are expected to reach 1 million barrels a day in the next month. The CEO of CMarkits, Dr Yousef Alshammari said, “last week, a permanent ceasefire agreement was signed between the fighting parties, which is expected to boost the stability of oil production and export operations.” OPEC and friends are doing their best to manage the market so any additional barrels will dampen their efforts.
OPEC meets at the end of the month and it had expected to announce an easing of the production adjustment and the gradual return of barrels on the market in January. OPEC is currently maintaining cuts of 7.7 million barrels a day and was expected to ease that to 5.7 million barrels a day. Most analysts are expecting the organisation will hold production at current levels, possibly until March 2021. Alshammari says, “this may prove to be difficult given the fact that many countries including Iraq and Nigeria have struggled to meet their targets in the previous months.”
The US Presidential election happens next Tuesday, but because of the unpreceded number of postal votes, the result may not be announced immediately. Some votes will be posted on the day and all will need to be counted, possibly leading to disputes in the next couple of weeks. While economic news from the US this week shows GDP growth of 33 percent, the reality on the street remains a gloomy one and investment and real economic progress will remain subdued until after the election.
Oil prices will remain low in coming weeks, possibly until the end of the year and beyond. The big focus for oil producers in coming weeks will be to find consensus and keep a sense of balance in the market during this time of low demand.