Fear about lower fuel demand pushes oil prices down

London — Oil prices fell on Monday on worries that widening coronavirus lockdowns in Europe would weaken fuel demand and amid concerns about turbulence around this week’s US presidential election.

Brent was down 97 US cents, or 2.6%, to $36.97 a barrel by 9.48am GMT, and US West Texas Intermediate fell $1.04, or 2.9%, to $34.75. Both contracts fell more than $2 earlier in the session.

Countries across Europe have reimposed lockdown measures to try to slow Covid-19 infection rates that have accelerated in the past month.

“Near-term oil fundamentals will continue to deteriorate until the unprecedented rise in Covid infections is brought under control,” said Stephen Brennock of oil broker PVM.

Global oil trading companies expect further demand destruction although estimates differ. Vitol sees winter demand at 96-million barrels per day (bpd) while Trafigura expects demand to fall to 92-million bpd or below.

A tighter race in the lead up to the US election on Tuesday and electoral uncertainty also prompted investor caution in global markets.

“The concerns over oil supply and demand fundamentals … are going to play second fiddle to the US presidential election and to how risk markets will react to the outcome,” BNP Paribas analyst Harry Tchilinguirian said.

Oil pared some losses after Japan’s export orders grew for the first time in two years and China’s factory activity rose to a near-decade high in October. More manufacturing surveys are expected from the eurozone and the US later in the day.

Sharply rising Libyan production also added to pressure on prices. Libya’s output currently stands at about 800,000 barrels per day (bpd), more than 100,000 more than a few days ago, a Libyan source told Reuters on Saturday.

Meanwhile, Opec oil output rose for a fourth month in October, a Reuters survey found.

Opec and allies including Russia are cutting output by about 7.7-million bpd to support prices. Opec+ is scheduled to hold a policy meeting on November 30 and December 1 and some analysts expect it to delay plans to ramp up output by two-million bpd from January.

“A resolute and co-ordinated announcement and action by Opec+ are what is really needed to prevent any further price slide,” said Commerzbank analyst Eugen Weinberg. 

Reuters