Oil prices drop for fourth day as COVID-19 second wave worries intensify

MELBOURNE/SINGAPORE: Oil prices slipped for a fourth straight day on Tuesday on worries a resurgence of coronavirus cases globally is stifling a promising recovery in fuel demand, while growing output from Libya adds to plentiful supply.

“It’s clouds of gloom over the oil market again,” said Vandana Hari, energy analyst at Vanda Insights.

Brent crude futures fell 32 cents, or 0.8%, to $42.30 a barrel by 0418 GMT, after falling 31 cents on Monday.

U.S. West Texas Intermediate (WTI) crude futures slid 26 cents, or 0.6%, to $40.57 a barrel, after losing 5 cents on Monday.

COVID-19 cases topped 40 million on Monday, according to a Reuters tally, with a growing second wave in Europe and North America sparking new clampdowns.

“The demand picture was already weak; the supply sentiment took a hit on Monday as Saudi Arabia and Russia steered clear of signalling that they would reconsider the planned OPEC+ January output boost,” said Hari.

A meeting on Monday of a ministerial panel of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together called OPEC+, pledged to support the oil market as concerns grow over soaring infections.

For now OPEC+ is sticking with a deal to curb output by 7.7 million barrels per day (bpd) through December, and then shaving the cuts back to 5.8 million bpd in January.

However, three sources from producing countries said the planned output increase from January could be reversed if necessary.

“We don’t think oil markets are in a position to absorb the around 2% of global supply that OPEC+ are expected to restart from 1 January, 2021,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.

He said rising output from Libya, which is operating outside the OPEC+ pact, was adding to oversupply concerns.

Libya is rapidly ramping up production after armed conflict shut almost all of the country’s output in January. Output from its biggest field, Sharara, which reopened on Oct. 11, is now at around 150,000 bpd, or about half its capacity, two industry sources told Reuters.

Meanwhile traders will be watching for crude and product inventory data from the American Petroleum Institute on Tuesday. Analysts expect U.S. crude oil and distillate stockpiles likely fell in the latest week, according to a Reuters poll.

“Since April we have seen a miraculous recovery in oil demand – which is now at about 92% of pre-pandemic levels, but it’s too early to declare an end to the COVID-19 oil demand destruction era,” said Rystad Energy oil markets analyst Louise Dickson.