Oil prices fluctuated this morning, swinging from marginal gains to losses as traders price in Libya supply and a spike in new global Covid-19 cases.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the morning's movements:
"After Monday’s trading, which was the session that priced in all OPEC-related production developments, prices will now be moving on demand concerns.
Although oil saw a boost in the morning on worries over Libya’s production stability, partly also correcting yesterday’s losses that went further than one would expect after an OPEC deal, market participants start to look at what’s going on with demand.
Everything was about supply last weekend, but now the market quickly sobers up to negative demand indicators.
New coronavirus cases reached their highest ever level, WHO said yesterday, with key regions, such as the Americas and Southeast Asia accounting for the spike.
Make no mistake, this is chilling. Both for the world from a medical perspective but also for the energy markets. A second wave of the pandemic isn’t such a distant possibility any more and if it is realised, oil demand, which has slowly been recovering, might plunge back to lockdown levels.
Remember a month ago, when what all the market cared about was where to put its extra oil? When nobody wanted to buy? A second wave of the pandemic could bring these back.
All eyes will be on how Covid-19 develops from now on and if all other supply variables remain stable, prices will move in a direct opposite relation to new confirmed cases.
Also remember, an OPEC+ deal to continue output curtailments never meant that prices will always increase. Healthy price levels can bring unrestricted production back from other countries, such as the US and Canada, where producers were forced to shut-in wells amid the crisis. And if production rises there, prices will of course take a hit. In fact the US has already started bringing back part of its shut output.
As we have said in previous days, oil climbed faster than most expected to around US$40, but the ascent is steeper and more difficult now and how Covid-19 affects demand works for prices as an ‘altitude sickness’.
Rystad Energy expects prices to continue fluctuating around the 40-dollar mark for the remainder of the month and until we have a more definite idea of how Covid-19 and US production develop. And of course of how much OPEC+ complies with its commitment!"
Read the article online at: https://www.oilfieldtechnology.com/special-reports/09062020/oil-prices-move-over-demand-concerns/