Oil prices fall sharply on renewed coronavirus restrictions

By Alex Longley on 10/28/2020

(Bloomberg) --Oil fell sharply with broader markets as renewed restrictions on movement in Europe clouded the outlook for consumption once again.

Crude futures in New York fell 4.6%, while those in London retreated below $40 a barrel, the lowest since Oct. 5. Germany is proposing widespread curbs for a month, while France is preparing tougher restrictions that may include a lockdown in the latest round of measures to limit the spread of Covid-19. That weighed on European and U.S. equity markets, while the dollar was stronger, souring oil market sentiment.

Adding to the gloom, the American Petroleum Institute reported crude inventories expanded by 4.58 million barrels last week, while gasoline stockpiles rose for a second straight week, according to people familiar with the data. Official government figures are due later on Wednesday.

Crude has come under renewed pressure as the virus leads to a more fragile demand outlook, and the head of Saudi Aramco’s trading unit said traders are cautious given the uncertainty in consumption. The market is also facing rising supply from Libya, which is eroding some of the stock draws that were expected in the fourth quarter. It means OPEC+ has some tough decisions to make on the path forward for its output curbs next month.

“With hefty stock builds across the board in the headline API numbers, it is not all that surprising the oil price is moving lower this morning,” said Harry Tchilinguirian, oil strategist at BNP Paribas SA. “With equities lower and a stronger dollar reflecting a retreat in risk appetite, oil also came under pressure.”

Prices:

  • West Texas Intermediate for December delivery dropped 4.6% to $37.76 a barrel as of 8:34 a.m. New York time
  • Brent for December settlement lost 3.9% to $39.60

U.S. gasoline inventories expanded by 2.25 million barrels last week, while crude supplies at the key storage hub of Cushing climbed by 136,000 barrels, according to the API. The median estimate in a Bloomberg survey forecast nationwide crude stockpiles increased by 1.5 million barrels.

The oil market’s structure has also weakened markedly in recent days. Brent’s nearest futures contract is at its biggest discount to the next month in about two weeks, as concerns about the market’s health in the near-term grow.

Other oil-market news:

  • Zeta is forecast to strengthen to a Category 2 hurricane before making landfall in southeastern Louisiana on Wednesday, possibly racking up $1 billion in damage.
  • The e-commerce boom is offering a lifeline for oil demand.
  • Iraq’s crumbling economy is becoming a threat to the Organization of Petroleum Exporting Countries.
  • Traffic congestion crept higher in North and South American cities this month, held steady in China and has fallen back in several European capitals as different parts of the world respond to the coronavirus pandemic.

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