(Bloomberg) — Oil plunged to a five-month low as gains in Libyan production coincided with a wave of new virus-lockdown measures in Europe.
The double whammy of growing supply and dwindling demand pushed crude futures down as much as 6% in New York. That could be just the curtain-raiser for a turbulent week of trading as Americans head to the polls Tuesday in an election that could reshape U.S. policy on everything from coronavirus lockdowns to Iran and fracking.
See also: What to Watch in Commodities, the U.S. Election-Day Special
U.K. Prime Minister Boris Johnson announced at the weekend that England would join other countries in western Europe in imposing tougher restrictions to fight the spread of Covid-19. Trafigura Group boss Jeremy Weir said the second wave of the virus around the world could push global oil demand to as low 88 to 89 million barrels a day, down 11% or 12% from last year.
In Libya, the pace of the production recovery continues to surprise traders and create a headache for the OPEC+ alliance. Daily output has reached 800,000 barrels and the country is targeting 1.3 million by the beginning of 2021, said Mustafa Sanalla, the chairman of state-run National Oil Corp. That compares with just 100,000 barrels a day in early September.
The worsening demand outlook coupled with fresh supply has pushed U.S. crude benchmark West Texas Intermediate down around 16% from its close on Oct. 20. It leaves OPEC+ with an ever trickier task as it decides whether to add more supplies to the market.
“The recovery in global oil demand has slowed significantly,” said Sri Paravaikkarasu, head of Asia oil at FGE. “Crude prices will continue to be pressured by bearish demand data and headlines in the coming weeks.”
Despite the weakness, Vitol Group, the world’s biggest independent oil trader, characterized the latest lockdown measures as just a “speed bump,” with tightening global inventories likely to cushion the downside. The bigger picture is still a world in “stock-drawing mode,” Mike Muller, Vitol’s head of Asia, said in an interview Sunday with Dubai-based consultants Gulf Intelligence.
That view was backed up by figures from India over the weekend, where diesel sales grew for the first time in eight months. The country also posted bumper manufacturing data on Monday, while figures from China showed an expansion too, indicating Asian demand growth continues to outpace the rest of the world.
Crude’s slump at the open on Monday pressured the market’s structure. WTI’s nearest contract traded at its biggest discount to the next month since September, a sign that concerns are growing about oversupply. The cost of bearish put options is at its highest relative to bullish calls since May.
Libya’s National Oil Corp. plans to increase output to 1.6 million barrels a day — around the same level as before the 2011 uprising that ousted Muammar al-Qaddafi — by the end of next year, according to the company’s chairman.
”Libyan production returning is going to be an increasingly important factor driving oil prices,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. The mounting lockdown measures in Europe have also “definitely shaken market confidence,” he said.
*story by Bloomberg