Still, demand recovery persists despite the odds: File Image/PixaBay
The seesaw of crude gains one day and losses the next due to worries about rising Covid rates continued Thursday with a 3 percent drop in oil, this time due to Madrid, Europe‘s biggest hot spot, reportedly returning to lockdown in coming days, and Moscow ordering employers to send at least 30 percent of their staff home.
Brent fell $1.37, or 3.2 percent, to settle at $40.93 per barrel, and West Texas Intermediate ended down $1.50, or 3.7 percent, at $38.72.
The losses were also caused by output from the Organization of the Petroleum Exporting Countries growing in September by 160,000 barrels per day (bpd), largely due to Libya and Iran, both exempt from the cartel’s reduction pact.
We continue to see a demand recovery, but it has slowed
Henri Patricot, analyst, UBS Group AG
Also, as Bob Yawger, director of energy futures at Mizuho, noted, “Reports today that Saudi Arabia had increased exports in September by 500,000 bpd seemed to be the final straw.”
With all eyes on Europe, Henri Patricot, analyst at UBS Group AG, struck a level-headed tone by stating, “We continue to see a demand recovery, but it has slowed.”
He added that refineries are responding to the collapsed jet fuel market by making more road fuel; also, gasoline is rebounding as people avoid public transport by driving their cars to work.
However, this is putting pressure on refiners to continue processing crude, and Patrocot noted that “It’s very difficult for anyone to make money when diesel cracks are at this level”; he added that refineries are preparing for a tough winter.
Unfortunately, a true perspective of demand recovery is hard to come by: for example, media on Thursday stated that more British companies reported a fall in sales over the past three months than experienced an upswing, despite the lifting of most lockdown restrictions.
However, Andy Haldane, chief economist at the Bank of England, estimated that output at the end of September was just 3-4 percent below pre-pandemic levels and said persistent negative reporting would risk undermining the recovery.
Meanwhile, air travel that is a key to crude price recovery could soon get a boost with the advent of Covid testing for passengers arriving in the UK, according to Heathrow chief executive John Holland-Kaye; the airport has been told by Parliament that the government is aiming to begin trials by mid-October, with the potential for a New York–London route opening by the end of November.
And despite persistent misreporting about vaccine development, last-stage trials for candidates from Moderna, Pfizer, AstraZeneca, and Johnson & Johnson are winding down, with health officials expecting at least one safe and effective vaccine by the end of the year.