Oil falters as specter of collapsing demand resurfaces

Posted on Oct 29, 2020 at 6:08 p.m.

It’s go again. The oil market will not even have time to return to its pre-covid levels as the threat of a further collapse in demand returns to haunt the black gold planet. On Thursday, crude prices fell by almost 5% to quote around 35 dollars for the WTI, US benchmark, and around 37 dollars for brent, European benchmark, at the lowest since last June.

The recovery in demand in Europe has stalled in recent weeks, says Giovanni Staunovo of UBS in a note, the decisions of European leaders to reconfigure will lead to a plunge in demand in these countries », Adds the expert. France and Germany, which announced new measures on Wednesday, consume around 4% of the world’s oil. The announcements are all the more brutal as the operators had in mind more localized measures in the event of a second wave, underline ING analysts.

Return from Libya

On the supply side, Libyan production has returned to the market, putting pressure on barrel prices. The national company in Libya estimates that it will reach the threshold of 1 million barrels per day soon, against barely 140,000 barrels in September. While UBS anticipated a slight oil deficit in the fourth quarter, thanks to the quotas of OPEC and its partners, the market could be in surplus in November and December.

In this context, the threats posed by Hurricane Zeta to oil installations in the Gulf of Mexico had little effect on prices. The storm was also downgraded Thursday morning to a tropical storm. It made landfall in Louisiana on Wednesday with winds of up to 130 km / h. The National Hurricane Center explains, however, that it has lost power slightly.

OPEC exhausted

OPEC and its allies, including Russia, could introduce further production cuts to stabilize the market, but Commerzbank analysts do not believe it: “ the crisis has already lasted too long, their patience and economic capacity are crumbling », They write. For them, the downward pressure should continue for a while.

Last spring, the pandemic brought the global economy to a halt, individual transport and air traffic resulting in a historic demand shock. Oil consumption has fallen 25% to 30%, unprecedented in modern history. In the United States, a barrel of crude even traded at a negative price, -37 dollars on the futures markets, due to the saturation of storage capacities.

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