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Oil slipped as nations reimposed tighter lockdown restrictions in hopes of containing a resurgent pandemic that is depressing demand.
Futures in New York declined as much as 1.4% on Oct. 20. Ireland and Wales imposed stringent lockdowns and Italy’s financial center is planning a curfew, sapping momentum from an already fragile demand recovery. The Organization of Petroleum Exporting Countries and its allies warned on Oct. 19 of a “precarious” outlook as the virus crimps oil consumption. Yet, Russia’s Energy Minister Alexander Novak said it is still too early to speak about any decision on the OPEC+ oil-output cuts beyond December.
“Crude still has issues in terms of demand and COVID cases continuing to be on the rise,” said John Kilduff, a partner at Again Capital. A return to tighter lockdown restrictions “is going to hinder air travel again, hinder motor fuel demand and it’s going to undermine sentiment.”
U.S. crude futures have been stuck around the $40 a barrel mark so far this month as governments struggle to control new flareups of the virus. Traders are also looking for signs as to whether U.S. lawmakers can pass another round of fiscal stimulus before the election with negotiations stuck at an impasse for months.
“If there’s no stimulus deal, you’re going to see risk appetite in general tick lower,” said Bob Yawger, head of the futures division at Mizuho Securities. “Crude oil is looking at that as a demand indicator.”
Both Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman and Russia’s Novak offered bearish views on demand at the OPEC+ Joint Ministerial Monitoring Committee meeting on Oct. 19. Prince Abdulaziz bin Salman called on the group to be proactive in the face of uncertain demand. The panel did not discuss if OPEC+ should press on with plans to taper output cuts next year, delegates said.
Yet, UBS Group AG analysts said delegates at the next JMMC meeting on Nov. 17 will likely recommend that an output delay is announced at the full meeting two weeks later.
OPEC+ output cuts are creating difficulties for Iraq’s energy industry, Oil Minister Ihsan Abdul Jabbar said at the “Iraq Petroleum” conference on Oct. 20. He said the oil market will be more balanced by the second quarter of next year.
Meanwhile, analysts are expecting U.S. crude supplies to fall for the second straight week, according to a Bloomberg survey, ahead of government data on Oct. 21. The industry-funded American Petroleum Institute will report its inventory tally later Oct. 20.
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