Oil dropped from a two-month high after U.S. coronavirus restrictions tightened and cracks emerged in the united front presented by OPEC+.
Futures fell 0.8 per cent in London, after fluctuating between gains and losses. New York City said it would shut schools to stem rising infections, while road use in Europe continued to tumble as lockdowns remained in place across the region.
The shaky demand picture poses a challenge to the Organization of Petroleum Exporting Countries and its allies as they struggle to manage the market. With less than two weeks to go until a key policy meeting, officials from the United Arab Emirates stoked tension by privately floating the idea of leaving the club.
Oil is still up 2.7 per cent this week amid vaccine developments and a demand rebound in Asia, with China seeing the first draw of its implied crude inventory in three years and Russian crude trading almost $3 higher than the Dubai benchmark. However, a resurgent coronavirus in the U.S. and Europe is sapping fuel consumption there and weighing on the broader global recovery.
Only 35 per cent of Americans will be taking to the roads this year during the Thanksgiving holiday, compared with 65 per cent last year, according to retail fuel tracker GasBuddy, while in Europe, driving has continued to decline.
Crude seems to have gone as high as it can, said Hans van Cleef, senior energy economist at ABN Amro Bank. “Oil demand will not fully recover before 2022,” he said. “Markets may have been a bit too optimistic” about a vaccine rollout.
As markets in Europe come under pressure from the virus, profits from turning crude into gasoline have plummeted. The region’s gasoline crack turned negative for the first time in months on Thursday, while its American equivalent closed at the lowest since April on Wednesday.
While the UAE has not said publicly it’s debating its OPEC membership, let alone planning to exit, Emirati policy makers seem increasingly frustrated by what they see as an unfair allocation of production quotas.
The UAE move, which comes as OPEC+ debates whether to delay a planned easing of output cuts, is unusual because the country has typically avoided public clashes. It’s unclear whether the warning is a maneuver to force a negotiation over production levels, or represents a genuine policy debate.
© 2020 Bloomberg L.P.