On October 27, 2020, oil prices rose after steep losses were recorded earlier. However, the market sentiment remains silent as increasing cases of COVID-19 throughout the world hurt the near-term outlook for crude oil demand as supply rises.
Notably, U.S. oil CLc1 gained 37 cents, or about 1%, to trade at $38.93 a barrel while Brent crude LCOc1 was up by 42 cents, or almost 1%, at $40.88 a barrel by 0651 GMT. Both of these contracts lost over 3% on October 26.
A lack of significant progress on coming up with a viable solution for a U.S. coronavirus relief package was said to add some gloom to the market. But, U.S. House of Representatives Speaker Nancy Pelosi believes that there is a huge possibility for a deal to be reached before the upcoming November 3 presidential elections.
A second wave of the pandemic sweeping across many parts of the world including Russia, Germany, Britain, the US, the UK, France, and many other nations has undermined the economic outlook globally. The record numbers of new cases are forcing some of the countries to impose fresh restrictions as winter comes in.
Vivek Dhar, a Commonwealth Bank of Australia (CBA) commodities analyst, said:
“We think demand from this point onwards is going to struggle to grow. COVID-19 restrictions are all part of that.”
CBA expects that the United States oil will average $38 and Brent to average $41 in Q4 2020. Possibly, the oil prices got some support from a possible drop in the US production as oil firms started shutting offshore rigs with the looming threat of a hurricane in the Gulf of Mexico.
Prince Abdulaziz bin Salman, Saudi Arabia’s Energy Minister, said that the worst may be over for the crude oil market. However, his comments were at odds with a previous remark from the secretary-general of the Organization of the Petroleum Exporting Countries (OPEC).
The secretary-general said that any type of oil market recovery may take a bit longer than hoped as a second wave of the pandemic hits many countries throughout the world. In that context, Eurasia Group said in a note:
“This dynamic will likely weigh on oil prices for the rest of 2020 and exert pressure on OPEC and its allies to keep restricting supply well into next year to try and protect Brent above $40 per barrel.”
In the coming weeks, the market expects that Libya’s production will reach 1 million barrels per day (bpd) as announced by the country’s national oil company. That is a rapid return to productivity than most analysts had predicted. This increase complicates the efforts put in by OPEC aiming to restrict output.
OPEC+ which is made up of OPEC and allies like Russia plans to increase production by 2 million bpd from the start of next year after initiating record output cuts earlier this 2021.
On October 27, a Reuters analyst survey conducted ahead of data from the American Petroleum Institute and the U.S. Energy Information Administration on Wednesday made estimates that the U.S. crude stocks rose in the week to October 23. On the other hand, distillate and gasoline inventories fell.