Oil finds support as COVID Europe lockdowns feed expectations that OPEC+ may postpone output-cut curbs
Apu Gomes/Agence France-Presse/Getty Images
Oil futures turned higher on Monday, fed by expectations that OPEC+ will postpone plans to curb production cuts, amid concerns over energy demand and widening restrictions on activity in Europe to contain surge in COVID -19.
Nervousness over the U.S. presidential election also was a factor, analysts said, citing fears of an unclear outcome that could spark volatility in financial markets.
“Market concerns that major developed economies are heading for a potential ‘double dip’ recession” have been weighing on oil prices, said Cailin Birch, global economist at The Economist Intelligence Unit, in emailed commentary.
“A second economic slowdown could send [oil] stocks rising again in the coming months,” she said. However, members of the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, are “well aware of this challenging new environment.”
OPEC+ had planned to reduce its production cut targets from 7.7 million barrels a day to about 5.8 million barrels a day at the start of the new year.
However, Birch said The Economist Intelligence Unit expects OPEC+ members to agree at their next summit, on Nov. 30, to “extend the current quotas by another three months, in anticipation of a difficult winter. “
Reuters reported Monday, citing Interfax, that the Russian Energy Minister planned to talk with domestic oil companies about the OPEC+ oil output agreement.
“Greater production restraint from OPEC+ is likely to nudge oil prices slightly higher,” back to the $40 baseline, Birch said. “The tepid recovery in the U.S. oil and gas sector should also help to avoid further supply-side pressure on prices.”
West Texas Intermediate crude for December delivery
CLZ20,
CL.1,
rose 45 cents, or 1.2%, to $36.24 a barrel on the New York Mercantile Exchange after trading as low as $33.64. January Brent crude
BRNF21,
BRN00,
added 41 cents, or 1.1%, to $38.35 a barrel on ICE Futures Europe after touching a low at $35.74.
“If OPEC+ don’t respond soon, the pressure will continue to increase and both Brent and WTI could find themselves closing in on $30 a barrel once again,” said Craig Erlam, senior market analyst at OANDA, in a note.
“The group can only sustain so much and these lockdowns are only going to spread further. It’s not a case of if they’ll push back production increases, it’s now a case of when,” he said.
England will be the latest European country to move into a second national lockdown, joining France and Germany in taking stricter measures to contain the spread of COVID-19 as the number of cases continue to rise.
The number of daily U.S. cases hit a record late last week, while the seven-day average of new cases in most states remains above the 14-day average, according to a Wall Street Journal analysis of data from Johns Hopkins University, indicating a continued acceleration in the spread of the virus.
Tuesday is Election Day in the U.S. and Democratic challenger Joe Biden continues to hold a lead over President Donald Trump in national polls, though the race appeared to tighten in battleground states that could determine the outcome in the electoral college.
Analysts have cited the potential for a contested outcome as a risk factor for markets, potentially triggering a sharp jump in volatility across asset classes.
Read: Here’s how the U.S. presidential election could shake up the oil market
Also see: Why a Biden presidency may lead to higher gasoline prices
On Nymex Monday, December gasoline
RBZ20,
added 6% to $1.038 a gallon and December heating oil
HOZ20,
climbed 0.6% to $1.0929 a gallon.
December natural gas
NGZ20,
traded at $3.225 per million British thermal units, down nearly 3.9%, as production in the Gulf continued to recover in the wake of Hurricane Zeta, which made landfall on Wednesday on the Gulf Coast.
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