Oil Prices Get Bump from Equities Rebound

Oil Prices Get Bump from Equities Rebound
Oil recovered from the steepest one-day loss in almost two weeks as equities advanced.

(Bloomberg) -- Oil recovered from the steepest one-day loss in almost two weeks as equities advanced, though further gains may be limited by a resurgence in coronavirus cases and new lockdown measures.

Crude futures rose 0.7% in both London and New York as stocks staged a modest comeback from Monday’s broad selloff. Although the global oil market will move into deficit in the fourth quarter on the back of OPEC+ supply cuts, prices will likely remain range-bound until there’s a recovery in distillate demand, including jet fuel, according to Bank of America Merrill Lynch.

“Global demand looks pretty soft, it looks like we’re going to get another wave of the virus, and we’re in a seasonally weak time of the year,” said Bill O’Grady, executive vice president at Confluence Investment Management in St. Louis.

The market is assessing fresh risk from the prospect of a second wave of Covid-19, as governments mull tightening restrictions that have crippled demand. Federal Reserve Chair Jerome Powell said the recovery in the American economy remains highly uncertain and will need further support. While some expect the supply picture to improve heading into the end of the year, the persistent demand slump is keeping a lid on any substantial rally.

“The challenge facing oil producers is that winter gasoline is simply too easy to make and global distillate inventories remain completely dislocated,” analysts at Bank of America Merrill Lynch said in a report. “The obvious choice for refiners now is to cut crude runs and wait out the pandemic.”

The so-called crack for combined gasoline and diesel against West Texas Intermediate futures -- a rough profit gauge for processing a barrel of crude -- fell 8.8% to $8.35 a barrel, the lowest since August. Refineries typically need the spread to be more that $10 a barrel to make a profit processing crude oil.

Meanwhile, Libya is signaling that it will return some supply back to the market. Libya has lifted force majeure restrictions at its Zueitina export terminal, according to the state National Oil Corp. The company is in the process of evaluating the security situation at the nation’s other oil ports.


  • West Texas Intermediate for October, which expires Tuesday, rose 29 cents to settle at $39.60 a barrel. The more active November contract gained 26 cents to $39.80 a barrel
  • Brent for November settlement rose 28 cents to end the session at $41.72 a barrel

On the U.S. Gulf Coast, Tropical Depression Beta has flooded Houston, but is weakening as it heads toward Louisiana. The storm isn’t expected to cause many issues for onshore refineries, and interruptions to offshore rigs aren’t likely to be long-lasting either. Meanwhile, some Texas ports are starting to reopen, with the U.S. Coast Guard allowing traffic to resume at Corpus Christi and reopening the Houston and Galveston ports with restrictions.

U.S. crude stockpiles fell by 3.3 million barrels last week, according to a Bloomberg survey before official government figures due on Wednesday. That would be the second straight weekly decline. The industry-funded American Petroleum Institute will release its figures later on Tuesday.

The American shale industry continues to face a troubling outlook, with the number of bankruptcies expected to grow to 68 in 2021, according to Rystad Energy. Leslie Wei, Rystad’s vice president of upstream research, said WTI needs to climb to around $60 a barrel in order to jumpstart shale’s recovery.

Other oil-market drivers

  • The swing buyers in the Chinese oil market are seeking additional quota to import crude after they almost used up their existing allocations following a buying spree earlier in the year.
  • Russia is seeking to raise the tax burden on its oil industry as crude’s slump and the coronavirus pandemic hit the federal budget.
  • Exxon Mobil Corp.’s U.K. North Sea assets have attracted suitors from state-owned companies to private equity-backed firms as the U.S. oil giant seeks to exit the aging region altogether, according to people with knowledge of the matter.

© 2020 Bloomberg L.P.


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