Oil prices rose today as US production is hit by yet another hurricane, but the gains may prove to be short-lived due to the worsening Covid-19 pandemic.
Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez-Masiu, has commented on the price increases:
"When oil demand is stalling, the only way for prices to gain ground is a shock in supply and the new hurricane heading towards the US Gulf Coast provided just that.
Prices registered a serious drop the previous day, as traders priced in heavily the worsening Covid-19 pandemic.
The rising number of infections, lockdowns and travel restrictions is a serious threat for the oil market’s price viability and the situation at the moment looks more pessimistic than not.
Monday’s decline was justified and even though hurricane-related production shutdowns help in the very short term, when the weather calms it will not take long to get back to a more depressed market.
For the moment though, for short-term bargain hunters, 16% of the Gulf oil output has shut in and it helps prices breath.
Another reason that today’s uplift will likely prove to be short-lived is that the market now sees the chances of a new US fiscal stimulus agreement being signed into law before next Tuesday quite narrow.
On top of all that, Libya is speeding up its oil machine. Although we continue to be skeptical about Libya reaching the 1 million bpd mark, the increase in output occurred at light speed and took many of the market participants by surprise.
Libya’s production is a major headache also for the OPEC+ group, which sees not only oil demand not recovering as hoped for, but also supply getting a boost that was not forecasted when the initial production-cut deal was drafted.
The increase in Libyan supply could not come back at a worst timing. Covid-19’s second wave is registering infection records higher even than the first wave.
The world may be better prepared to handle the situation and keep business activity on, but demand is sure to take a blow. The worst part is that the current wave is on the rise rather than the decline and the market is questioning whether or not the worst is really behind us.
For oil, gains come and go like the weather under the current status quo and for prices to really keep increased levels a more permanent event is needed.
Like a brave decision to not increase production from January. And OPEC+ has more reasons than ever to bite the bullet and keep its members’ hands off opening their oil taps next year."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/27102020/oil-gains-on-us-hurricane-but-rise-may-be-short-lived/