Oil falls below $41 with surging COVID cases menacing demand

Oil fell for a second day – dropping below $41 a barrel in New York – as the ongoing spread of coronavirus dampens the demand outlook.

As well as the surge in European coronavirus cases, there are also growing numbers in the U.S., Japan and South Korea, all of which are major oil consumers. The International Energy Agency and the Organization of Petroleum Exporting Countries revised down their demand forecasts this week.

At the same time, supply is rising as Libya opens the taps. The country’s production rose to 1.145 million barrels a day on Friday, according to a spokesman for its state-run National Oil Corp.

Crude is still up more than eight per cent this week, however, after news of a potential COVID-19 vaccine breakthrough spurred a sharp jump in global markets on Monday. Futures have also been supported by indications that the OPEC+ alliance is closing in on a deal to delay a planned easing of output cuts. Still, three of the world’s top central bankers warned that a vaccine wouldn’t be enough to put an end to the economic challenges created by the pandemic as it continues to stymie consumption in some parts.

“There is a clear divergence in the oil demand recovery between Asia and Europe,” said Kevin Solomon, an analyst at brokerage StoneX Group. “We can assume that tighter lockdowns will resume in the United States, ultimately crimping oil demand.”

Prices

  • West Texas Intermediate for December delivery lost 1.9 per cent to $40.35 a barrel as of 1:11 p.m. in London
  • Brent for January settlement slid 1.4 per cent to $42.93

In Asia, refiners are having to outbid one another to secure supplies in the spot market as buying interest from Chinese refiners grows. Meanwhile in Europe, where motorway traffic is down by almost 50% in some countries, demand is stuttering anew. That’s impacting crude, with six supertankers of unwanted North Sea oil continuing to float in the region.

Passive oil investors are also taking a more circumspect view on oil in the short term. More than $460 million has been pulled from the market’s largest exchange-traded funds so far this week, according to data compiled by Bloomberg.

© 2020 Bloomberg L.P.