Oil set for biggest monthly drop since March as virus curbs grow

Oil is heading for its largest monthly decline since March as concerns grow that a resurgent pandemic in the U.S. and Europe will keep people hunkered down, crimping demand for auto and aviation fuel.

Futures edged higher on Friday but are on track for a 7.8 per cent fall this month. Infections surged to a record in the U.S. Midwest, while parts of Europe tightened restrictions to stem second waves.

As prices have fallen this week, there are signs that both road use and airline capacity in Europe have dwindled. Still, it’s a hodge-podge picture for consumption, where booming freight markets and improvements in China and India could still offer a lifeline. All the while, the market is looking ahead to next week’s U.S. election and an OPEC+ meeting at the end of November.

“The ebb and flow of risk appetite remains tied to COVID-related developments,” said Harry Tchilinguirian, oil strategist at BNP Paribas SA. “The reintroduction of stricter protocols in Europe that will affect person mobility need to be weighed against growing goods consumption channeled through e-commerce that is fueling diesel use in freight and delivery activities.”

While freight is one bright spot for demand in Europe, there are also mixed signs from France where a renewed lockdown is taking effect. Though use of motorways was down last week, data from TomTom NV show that traffic in Paris surged on Thursday night as people tried to leave the city. It’s just one sign that the impact of renewed lockdowns on consumption could be tempered.

The bleaker outlook for demand is continuing to take its toll on the refining industry too. BP plc will cease fuel production at its Kwinana refinery in Australia, which can process 146,000 barrels a day. It follows the idling of a plant by PBF Energy Inc. in the U.S. earlier in the week.

Prices

  • West Texas Intermediate for December delivery rose 0.2 per cent to $37.72 a barrel as of 10:36 a.m. London time
  • Brent for December, which expires Friday, gained eight cents to $37.68

© 2020 Bloomberg L.P.