04
Nov

Oil Slumps To Lowest Level Since May On Demand Concerns

The slide in global oil prices continued on Monday thanks to the rising tide of second and third wave coronavirus cases in the US and Europe, plus fears of instability in the US in the wake of the about to occur US elections.

Oil prices fell on Monday before rebounding 3% or more. Brent fell as much as 5.8% and WTI as much as 6% in early trade, hitting their lowest levels since May.

Brent crude futures for January dropped $US1.49, or 3.9%, to $US36.45 a barrel while US West Texas Intermediate futures fell $US1.58, or 4.4%, to $US34.21.

They later bounced more than 3% – WTI ended at $US36.93 while Brent rose 3.2% to $39.16 after a survey on the health of US manufacturing calmed investors nervous about a slide in the wider economy because of COVID.

But according to two major oil industry figures, the collapse in demand triggered by the new waves of the virus will put further downward pressure on demand in coming months, and therefore on prices.

Global oil traders Vitol (the world’s biggest oil trader) and Trafigura expect a resurgence in coronavirus cases in Europe and the United States to hurt fuel demand although their estimates vary.

This is adding to rising supply from Libya which has returning to the global oil market faster than expected with production running around a million barrels a day.

Libya’s move is likely to see the OPEC + group (which includes Russia and a couple of smaller producers) agree not to cut production caps any further, leaving the cap at 7 million barrels a day until early 2021.

A second virus wave would see oil demand destruction at about 1 million barrels per bay (bpd) in the United States and 1.5 million bpd in Europe, Trafigura’s Executive Chairman & Chief Executive Officer Jeremy Weir said at a Financial Times event in Singapore on Monday.

“As we move now into what we consider the second wave, our anticipation is to see for further demand destruction… So it’s really not looking good for the foreseeable future,” Weir said on Monday.

Trafigura expects oil demand to fall to around 92 million bpd or below in the short term, while Vitol sees winter demand at 96 million bpd.

That compares to 2019’s consumption of just over 101 million barrels a day.

“The latest European lockdowns definitely will affect demand, but probably only by half a million barrels a day, across Northwest Europe,” Vitol CEO Russell Hardy said, adding that this would be on top of what was already impacted.

Both CEOs said oil demand in most Asian markets, led by China and India, have rebounded except for jet fuel.

Vitol’s Hardy said he still expects Asia’s oil demand to grow by about 1 million bpd over the next few years.

Vitol controls Viva Energy Australia, which owns the old Shell refinery in Geelong which is under threat of closure, unlike the BP operation in Kwinana which will now close in coming months.

Viva also owns the old Shell service station operation (Coles controls the associated convenience stores).

Trafigura owns Puma Energy, Australia’s largest independent petrol retailer, operating the Gull, Choice and Peak service stations chains with sites in Western Australia, Northern Territory, Queensland, South Australia, and New South Wales.

Extracted from Sharecafe