Oil drops over 2% as increasing Covid cases drive demand concerns

26 Oct 2020

Oil declined more than 2% on Monday, prolonging last week’s losses as mounting coronavirus cases in the U.S. and Europe fuelled worries over crude demand.

Reuters reports Brent crude fell 89 cents, or 2.1%, at $40.88, whilst U.S. West Texas Intermediate (WTI) dropped 89 cents, or 2.2%, to $38.96, following a fall of over a dollar soon after trading started.

Last week, Brent declined 2.7%, whilst WTI fell 2.5%.
The U.S. reported a record number of new cases in two days through to Saturday, whilst in France over the weekend, new infections surpassed 50,000 on Sunday.
In terms of supply, at the end of last week Libya’s National Oil Corp ended its force majeure on exports from two major ports, and announced production would hit one million barrels per day in four weeks, a faster rate than forecast by analysts.
According to Avtar Sandu, senior manager commodities at Phillip Futures in Singapore: “New barrels of Libyan oil come at a time when the crude oil market had just faced the disappointment from the recently concluded OPEC+ ministerial panel when the organisation made no new policy proposals.”

Furthermore, OPEC+ is set to increase output by two million barrels per day in January next year, after slashing production by a record amount in 2020.
Last week Russian President Putin signalled he may agree to extending OPEC+ oil production cuts.
Elsewhere, in the U.S., energy firms increased their rig count by five, taking the total to 287 in the week to October 23, the highest since May, according to energy services firm Baker Hughes Co.
Nevertheless, the U.S. Commodity Futures Trading Commission said on Friday that investors increased their net long positions in U.S. crude futures and options during the week to October 20.