U.S. oil falls on demand recovery warnings

Oil plunged to its lowest in two weeks on growing fears that a sustained recovery in demand is still some way off.

U. S. benchmark crude futures fell 3.2 per cent. Brent dropped below its 100- day moving average, while futures in New York fell below the technical level but settled above it. New York City’s daily rate of positive tests is more than three per cent for the first time in months, and more serious action will be needed to stop the spread, Mayor Bill de Blasio said. That’s as global confirmed deaths from the coronavirus top 1 million.

“If they were to put new restrictions on areas of New York, that would surprise the market a little bit and knock it down,” said Michael Hiley, head of over- the- counter energy trading at New Yorkbased LPS Futures.

On its second to last day as the front- month, Brent futures for November delivery fell US$ 1.40, or 3.3 per cent, to settle at US$ 41.03 a barrel, while the more active Brent contract for December fell 3.1 per cent to settle at US$41.56.

U. S. West Texas Intermediate crude fell US$ 1.31, or 3.2 per cent, to settle at US$39.29 per barrel.

Meanwhile, the chorus of downbeat oil demand predictions continued to grow. Three of the world’s biggest independent oil traders said consumption won’t meaningfully recover for at least another 18 months. That comes as Total SE said demand growth will end around 2030 and Pierre Andurand, chief investment officer and founder of Andurand Capital Management LLP, called for demand to peak in 2026.

Adding to concerns over the state of the demand recovery, the market is contending with an increase in supply from OPEC+ members. Russia likely exceeded its OPEC+ quota, compounding the worry that the group may be adding more supply than the market can handle. U. S. inventory data Wednesday will give an updated outlook on consumption. Crude stockpiles are seen higher week- on- week and gasoline lower, a Bloomberg survey shows.

The sell- off in equities, “which have been propping up oil prices recently, is exposing the oil markets’ weak fundamental backdrop,” said Ryan Fitzmaurice, commodities strategist at Rabobank. The COVID-19 situation continues to weigh on the market, as “Europe has seen notable uptick in virus cases recently and even New York has seen cases rise just ahead of the start of the scheduled indoor dining restart tomorrow.”

Refiners are being forced into a balancing act due to the uneven rebound in fuel consumption. In India, processors are importing gasoline to cover demand as plants run below capacity, while in the U. S., refiners have idled some units to deal with excess diesel supply.

Total’s analysis is more conservative than that of BP Plc, which earlier this month said the era of oil- market growth was already over, but it adds to the chorus of executives and investors predicting rapid change for the industry.

Energy demand increased in all the scenarios considered in the French energy giant’s Energy Outlook report published on Tuesday, but most of the gains were seen being satisfied by low- carbon power. Electricity will comprise 30 per cent to 40 per cent of final energy demand in 2050, up from 20 per cent today, it said.

Total and its European peers are channelling investment into clean energy such as solar and wind, battery technology and car-charging networks.