U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled sharply lower last week on worries that demand will evaporate due to a surge in coronavirus cases, new economic restrictions and a potential global supply glut.
The plunge in the markets the past few weeks have erased nearly 50% to 61.8% of the gains earned from the April to August rally.
Last week, December WTI crude oil settled at $35.79, down $4.06 or -10.19% and December Brent crude oil finished at $37.46, down $4.31 or -11.51%.
New Demand Worries as COVID-19 Cases Surge
The decline in WTI and Brent crude oil futures came amid a record surge in new coronavirus cases in the U.S. and Europe.
The U.S. reported 99,321 new COVID-19 cases on Friday, beating its previous record set only a day prior, according to data compiled by Johns Hopkins University.
The top five records in daily cases have all been reported within the last eight days, according to Hopkins data. Scientists warn that the U.S. is only at the beginning of the latest surge in cases and predict accelerated growth within the coming weeks.
In the U.K., British Prime Minister Boris Johnson announced a second national lockdown in England starting Thursday as coronavirus cases surged. People will be ordered to stay at home unless it’s for essential purposes, including education, medical reasons, or to shop for groceries, Johnson said.
Nonessential businesses will be forced to close and pubs, bars and restaurants must close except for takeaway and delivery, he said.
Germany and France last week, declared fresh nationwide lockdowns in an effort to gain control of the coronavirus’ worsening spread ahead of the holiday.
Libya Continues to Ramp Up Exports
Libya’s National Oil Corp (NOC) has lifted force majeure on exports from the ports of Es Sider and Ras Lanuf, it said on Friday, adding that output would reach 800,000 barrels per day (bpd) within two weeks and 1 million bpd in four weeks.
Libyan oil output has recovered to about 500,000 bpd since the end of the blockade, far from the 1.6 million bpd it was producing before the country’s civil war.
Baker Hughes Data Shows US Oil Rig Count Up for Sixth Week in a Row
Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil rose by 10 to 221 this week. That followed increases in each of the last five weeks. The total active U.S. rig count, meanwhile, was up 9 to 296.
US Crude Inventories Rise as Output Soars
U.S. crude oil stockpiles rose more than expected the week-ending October 23, according to the Energy Information Administration (EIA).
U.S. crude production rose last week by 1.2 million barrels per day, the largest weekly gain on record, EIA data showed.
Potentially Bullish Factors
Russian President Vladimir Putin indicated he may agree to extending OPEC+ oil production reductions. This provided a little support so we are confident that an OPEC+ decision to make the move would be supportive for prices.
Saudi Arabia is also in favor of maintaining the group’s current output reduction of about 7.7 million bpd into next year in the face of lockdowns in Europe and rising Libyan oil output.
OPEC+ is scheduled to hold a policy meeting over November 30 and December 1.
Before agreeing with the statement that crude oil is being controlled by the short-sellers, keep in mind the warning issued by the Saudi Energy minister in September.
On September 17, the Saudi Energy Minister warned traders against betting heavily in the oil market saying he will try to make the market “jumpy” and promised those who gamble on the oil price would be hurt “like hell”.
Prince Abdulaziz bin Salman, OPEC’s most influential minister, said, “Anyone who thinks they will get a word from me on what we will do next, is absolutely living in a La La Land… I’m going to make sure whoever gambles on this market will be ouching like hell.”
To those who want to short the oil market, Prince Abdulaziz had the following warning: “Make my day.”
Given these comments made over a month ago, I think OPEC+ will step in and postpone the next round of production cut reductions so be careful shorting at current price levels.
OPEC turned the market around in April and they can do it again.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire