Oil prices tumbled on Monday, amid investor alarm over mounting coronavirus cases in the US and Europe and an expansion of output in Libya.
West Texas Intermediate Crude prices (CL=F) in the US were down as much as 3.3% shortly after European markets opened, but pared back losses to trade around 2% lower at $39.06 (£29.02) at around 11.30am in the UK (7.30 eastern time in the US). Widely traded brent futures contracts (BZ=F), down 3.1% earlier in the day, were trading 1.9% lower at $40.97 (£31.38).
Demand is expected to take a hit from rising COVID-19 cases, with the latest virus developments also leaving equities trading lower in Asia and Europe and set for declines at the open in the US.
The US saw daily reported infection rates hit a record high over the weekend at more than 85,000.
“In Europe we’ve seen Italy introduce the strongest virus restrictions since the end of a national lockdown in May as the country reported a daily record of cases while Spain approved a new national curfew. France also reported a record number of infections at over 52,000 yesterday,” wrote Deutsche Bank analysts in a note.
Ian Williams, an analyst at Peel Hunt, said “the weekend's news of increasing new cases is prompting renewed risk aversion.” It comes on top of purchasing managers’ index (PMI) data last week that showed activity declining further in Europe’s services sector.
Eamonn Sheridan, chief Asia-Pacific currency analyst at ForexLive, also noted supply pressures on oil prices. “Libya is upping the pace it’s bringing production back online, adding supply into the market,” he said.
It comes after the country’s National Oil Corporation (NOC) announced on Monday, “the closures in all Libyan fields and ports have ended.”
The NOC said on its Facebook page it had lifted the state of ‘force majeure’ at all sites, a contract clause halting production after the country’s civil war had seen them hit by a blockade. It had previously announced a similar easing of restrictions only at secure facilities.
“Libyan oil production continues to ramp up and at the same time demand is being hit by new lockdowns due to a surge in Covid-19 infections,” said Bjarne Schieldrop, chief commodities analyst at SEB.
“European jet fuel demand is rapidly moving towards 90% down year-on-year, and while the Northern hemisphere winter is expected to be colder than normal leading to above-average demand for heating oil, inventories are so high and demand so weak from other parts of the economy that this is unlikely to give diesel and crude prices much bullish lift.”
But vaccine hopes saw oil recover some of its losses on Monday. “A Covid-19 vaccine has a very high chance of being rolled out at the end of Q4 2020 or at least in H1 2021, so one could argue that better days are on the horizon,” he added.
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