Oil prices registered a second weekly gain, even as the surge in COVID-19 cases worldwide tempered market optimism.
Both benchmark prices recovered above the $40 per barrel barrier. The week ended with Brent rising to $42.78 per barrel and WTI gaining to $40.13.
Earlier in the week, Brent approached $45 per barrel on hopes for an effective COVID-19 vaccine, which was the main support for prices.
However, the International Energy Agency (IEA) downgraded its demand outlook by 1.2 million barrels per day (bpd) for the fourth quarter of 2020 in its latest oil market report.
The IEA forecast that the vaccine was unlikely to ride to the rescue of the global oil market for some time.
As a result, it reduced its outlook for crude consumption in the months ahead, deepening its expected drop in oil demand for 2020 by 400,000 bpd to 8.8 million bpd.
The IEA view followed a huge rise in new coronavirus infections in the US and elsewhere. The tightened travel restrictions are likely to lead to a slower than expected recovery in global oil demand.
The short-term COVID-19 outlook continues to darken with increasing cases and new restrictions that will dent demand while the world waits for a desperately needed vaccine that may not be widely available for months.
This all comes as oil supplies from Libya increase as we move closer to January 2021 when OPEC+ producers are set to ease output cuts. With such an uncertain outlook clouded by the resurgent virus, there may be a case for them to reconsider their strategy until the market has absorbed the supply glut.
The IEA reported that OECD oil inventories fell for a second consecutive month by 19.7 million barrels in September to 225 million barrels above their five-year average, which are still at historical high levels.
So the task of re-balancing the market amid such weak demand and rising supply is not an easy one.
China remains a bright spot with demand recovering and nearing 2019 levels according to Beijing’s data.
The continuation of that recovery by the world’s second largest oil consumer and largest importer, will be key in the months ahead.