Oil dips as surging coronavirus cases threaten demand recovery

Andrew Cummings
October 16, 2020

Oil prices settled about 3% lower on Monday as force majeure at Libya's largest oilfield was lifted, a Norwegian strike affecting production ended and US producers began restoring output after Hurricane Delta.

Brent crude futures were down $0.28 or 0.7% to $43.04 a barrel, while US West Texas Intermediate (WTI) futures fell by $0.24 or 0.6%, touching $40.80, Reuters reported.

With OPEC+ set to add millions of barrels of crude oil to the global market next year, even as concerns surrounding demand grow - OPEC, the IEA and EIA all suggest additional OPEC supplies in early-2021 would create large surpluses - it won't take much for crude to move back towards recent lows.

The American Petroleum Institute said US crude inventories fell more than expected in the latest week, according to a report released after market close on Wednesday.

Global oil inventories declined in August to 3.204 billion barrels, about 219 million barrels above the five-year average that the OPEC+ alliance has said it is targeting, according to the report.

The American Petroleum Institute industry group said USA crude, gasoline and distillate inventories all fell in the week to October 9, according to a report released after market close on Wednesday.

Oil stored at, Oklahoma, increased 2.9 million barrels compared to expectations for a build of 3.9 million barrels.

"I want to assure you that the OPEC, non-OPEC partnership will continue to do what it knows best, by ensuring that we don't relapse into this nearly historic plunge that we saw", Mohammad Barkindo said.

China's economic recovery from coronavirus lockdowns has spurred a pick-up in fuel use, and oil product demand will rise further to 13.53 million bpd in the fourth quarter, up from 13.27 million bpd, said Chris Page of Rystad Energy.

Two OPEC + sources said before a meeting of the group's technical committee to review the situation in the oil market that its members recorded a compliance rate of 102% in their agreement to reduce supplies.

The group is now reducing production by 7.7 million barrels per day to contribute to achieving a balance in the market, support prices and reduce stocks.

OPEC+ - producers from the Organization of the Petroleum Exporting Countries (OPEC) and others including Russian Federation - have been reducing output since January 2017 in a bid to balance the market, support prices and reduce inventories. "Demand itself is still looking anaemic".

The International Energy Agency said on Wednesday that a second wave of coronavirus infections could complicate efforts by producers to balance the market.

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