Oil Dips in Wake of Renewed Concerns Over Virus Surge

Pipework and towers at an oil refinery in Poland.
Pipework and towers at an oil refinery in Poland. (Bloomberg News)

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Oil fell amid growing concerns that another wave of the coronavirus pandemic will lead to tighter lockdown measures and further stifle crude demand.

Futures dropped as much as 1.5% in New York on Sept. 25 and are set for a 2.5% weekly decline. The U.K. added London to its watch list of potential pandemic hot spots, compounding worries Europe may face more restrictions as cases surge across the continent. In the U.S., a second governor tested positive for COVID-19 as cases surge in various parts of the country.

At the same time, the market is contending with returning supply. Oil traders have reported a sharp increase in Iraqi exports for next month, while output from Libya has shown signs of rising this week.


The spreading coronavirus “is really the key weight on this market,” said John Kilduff, a partner at Again Capital LLC. With flareups in Europe and parts of the U.S., “none of it’s good for the oil market and the demand outlook.”

U.S. crude’s gradual climb since May has come to a halt in September, with futures on track to drop about 6% this month. Still, Goldman Sachs Group Inc. said oil consumption is currently just above 93 million barrels a day and may rise 1.8 million a day to the end of the year. Yet, any meaningful recovery in consumption has so far been held back by the lingering pandemic.

“We’re going to be range-bound for a while until there’s the perception that the bulk of the COVID impact on demand is behind us,” said Michael Lynch, president of Strategic Energy & Economic Research. Additionally, “if the OPEC+ deal starts to fall apart and we get a lot more crude, that would send prices down.”

In a sign of just how damaging the virus has been to oil demand, the industry’s largest tankers next year will earn 8% less than they were anticipating back in May, according to a survey of shipping analysts by Bloomberg. That comes as nations including Saudi Arabia and Russia have drastically scaled back output, draining the hoard at sea and diminishing the flow of cargoes.

Market signals also point to growing weakness in Brent futures this week. On Sept. 24, the global crude benchmark traded at its smallest premium to U.S. WTI since May. It’s also at its weakest to the Middle Eastern Dubai benchmark in four months.

Meanwhile, the physical market for actual barrels of crude isn’t providing much optimism either. Bakken crude for delivery at Clearbrook, Minn., this week hit the largest discount to Nymex WTI futures in two weeks.

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