Oil Prices Fall Amid Demand Recovery Warnings
(Bloomberg) -- Oil plunged to its lowest in two weeks on growing fears that a sustained recovery in demand is still some way off.
U.S. benchmark crude futures fell 3.2%. Brent dropped below its 100-day moving average, while futures in New York fell below the technical level but settled above it. New York City’s daily rate of positive tests is more than 3% for the first time in months, and more serious action will be needed to stop the spread, Mayor Bill de Blasio said. That’s as global confirmed deaths from the coronavirus top 1 million.
“If they were to put new restrictions on areas of New York, that would surprise the market a little bit and knock it down,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures.
Meanwhile, the chorus of downbeat oil demand predictions continued to grow. Three of the world’s biggest independent oil traders said consumption won’t meaningfully recover for at least another 18 months. That comes as Total SE said demand growth will end around 2030 and Pierre Andurand, chief investment officer and founder of Andurand Capital Management LLP, called for demand to peak in 2026.
Adding to concerns over the state of the demand recovery, the market is contending with an increase in supply from OPEC+ members. Russia likely exceeded its OPEC+ quota, compounding the worry that the group may be adding more supply than the market can handle. U.S. inventory data Wednesday will give an updated outlook on consumption. Crude stockpiles are seen higher week-on-week and gasoline lower, a Bloomberg survey shows.
The sell-off in equities, “which have been propping up oil prices recently, is exposing the oil markets’ weak fundamental backdrop,” said Ryan Fitzmaurice, commodities strategist at Rabobank. The Covid-19 situation continues to weigh on the market, as “Europe has seen notable uptick in virus cases recently and even New York has seen cases rise just ahead of the start of the scheduled indoor dining restart tomorrow.”
- West Texas Intermediate for November delivery fell $1.31 to settle at $39.29 a barrel
- Brent for November settlement lost $1.40 to $41.03 a barrel
Refiners are being forced into a balancing act due to the uneven rebound in fuel consumption. In India, processors are importing gasoline to cover demand as plants run below capacity, while in the U.S., refiners have idled some units to deal with excess diesel supply.
The refining margin for combined gasoline and diesel resumed its trek lower on Tuesday after recovering in recent sessions. The so-called crack remains below $10 a barrel at its lowest seasonal level since 2010.
“It’s a very difficult situation for refiners,” said Stewart Glickman, energy equity analyst at CFRA Research. “The crack spreads aren’t great, utilization is low” and they’re “operating under more uncertainty than usual with how long it’s going to take before pre-pandemic levels get back.”
Other oil-market news
- Saudi Aramco may boost the official selling price of its flagship Arab Light crude by as much as 20 cents a barrel month-on-month, with respect to November sales to Asian customers, according to a Bloomberg survey of refiners and traders.
- Kuwait’s ruler Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah, a seasoned diplomat who tried to heal rifts between feuding Gulf states and rebuilt ties with former foe Iraq, has died. He was 91.
- Royal Dutch Shell Plc will announce a restructuring of its senior management on Wednesday as part of a wider reorganization, according to people with knowledge of the matter.
© 2020 Bloomberg L.P.
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