Oil slides on Covid-19 resurgence, strong dollar

Marco Green
October 18, 2020

Meanwhile, OPEC producers and allies see a risk of an oil surplus next year if Libya's production rises and demand remains depressed. Its output had been above demand for its crude in Q1 and Q2, it said.OPEC and its allies, including Russian Federation, are in the midst of a supply accord enacted during the depths of the coronavirus market meltdown and have to decide how long to maintain their current 7.7 million b/d production cuts, which are scheduled to taper to 5.8 million b/d for 2021 through April 2022.Oil prices have wobbled around $40-$45/b since June due to the economic uncertainty over rising infection rates in many countries, and speculation is rife on whether the OPEC+ alliance will tighten its quotas.The nine-country Joint Ministerial Monitoring Committee (JMMC), co-chaired by Saudi Arabia and Russian Federation, meets monthly to recommend any changes to output levels if needed.

The Organization of the Petroleum Exporting Countries has not indicated any plan so far to scrap that supply boost.

"The earlier signs of economic recovery in some parts of the world are overshadowed by fragile conditions and growing scepticism about the pace of the recovery", according to the document used in the panel's monthly meeting in October.

Oil prices eased on Thursday as new restrictions to stem a surge in COVID-19 infections dimmed the outlook for economic growth and fuel demand.

"The coronavirus surge is forcing Europe to reinstate pandemic restrictions and that is. crippling short-term crude demand forecasts", said Edward Moya, senior market analyst at OANDA in NY.

"With the 1.9 mb/d increase in the OPEC+ production ceiling now planned for 1 January, there is only limited headroom for the market to absorb extra supply in the next few months". The average LNG price for December delivery into North-East Asia was estimated at $5.80 per million British thermal units (mmBtu), up 10 cents from the previous week.

Under the worst-case scenario, OECD commercial oil inventories - a benchmark OPEC+ uses to gauge the market - would remain high in 2021 compared to the five-year average rather than starting to fall below that mark.

Oil prices slid on Friday, dragged down by concerns that a spike in COVID-19 cases in Europe and the United States is curtailing demand in two of the world's biggest fuel consuming regions, while a stronger USA dollar also added to pressure. The group's Joint Ministerial Monitoring Committee (JMMC) will consider the outlook when it meets again tomorrow. The JMMC can make a policy recommendation.

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