Oil takes a spill on demand chill
dubai — Oil prices fell four per cent on Monday on worries that widening coronavirus lockdowns in Europe would weaken fuel demand and on speculation of an eventual supply glut with a possible easing of sanctions on Iran oil exports in the event of a win by Joe Biden at the US election.
Brent crude futures for January dropped $1.49, or 3.9 per cent, to $36.45 by 0745GMT, while US West Texas Intermediate (WTI) futures fell
A lot of traders are now looking at the US and their rising infection rates and wondering if Europe is providing the model for what will happen in the US in the coming weeks Michael McCarthy, chief market strategist at CMC Markets
$1.58, or 4.4 per cent, to $34.21. Brent fell as much as 5.8 per cent and WTI as much as six per cent in early trade, hitting their lowest levels since May.
Countries across Europe have re
imposed lockdown measures to try to slow Covid-19 infection rates that have accelerated in the past month.
Global trading firms expect further demand destruction although estimates
If Biden re-enters the Iran deal, it would have ‘huge oil market implications’ and potentially ‘immediately add up to 1M bpd to an already bloated market facing a very fragile demand recovery Ryan Fitzmaurice, senior commodity strategist at Rabobank
differ. Vitol sees winter demand at 96 million bpd while Trafigura expects demand to fall to 92 million bpd or below.
A lot of traders are now looking at the US and their rising infection rates and wondering if Europe is providing the model for what will happen in the US in the coming weeks,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
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.
Still, concerns about weakening demand and rising supplies from Opec and the US caused oil prices to fall for a second straight month in October, with WTI falling 11 per cent and Brent 8.5 per cent.
Rising supplies from Libya and Iraq offset production cuts of about 7.7 million by other Opec members and caused the group’s output to rise for a fourth month in October, a survey showed.
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. Analysts argue that a Joe Biden win at the US presidential election would see a possible easing of sanctions on Iran leading to an additional supply of around two million bpd of crude resulting in a glut and price crash.
If Biden, as president, re-enters the Iran nuclear deal as he has indicated, it would have “huge oil market implications” and potentially “immediately add up to one million bpd to an already bloated market facing a very fragile demand recovery”, Ryan Fitzmaurice, senior commodity strategist at Rabobank.
However, some analysts believe that although this would not happen overnight, the market will still be too weak and fragile to be able to handle an additional supply of around two million bpd, when global oil consumption will not have returned to pre-pandemic levels until at least the end of 2021.
In such a scenario, Opec+ faces a massive challenge of accommodating up to two million bpd in returned Iranian supply, possibly through additional production cuts, to avoid a price collapse.
S&P Global Platts Analytics predicts 1.5 million bpd of Iranian exports could return to the market within a year of a new deal that removes US oil sanctions while Rapidan Energy Group sees 1.8 million bpd returning by the end of 2021 under Biden, a full year earlier than scenarios for any significant relief if President Donald Trump wins a second term.
However, Goldman Sachs’ commodities team argues that a Blue Wave would likely be in fact a positive catalyst. A Biden administration could provide a further boost to oil prices by making production — especially for shale — more expensive and more regulated.