Resurgence of COVID-19 in Europe, China dampens oil market sentiment
Brent traded below $79 a barrel on Friday amid rising uncertainty regarding oil supply and demand outlooks. Market sentiment cooled due to worries about demand destruction in Europe and China amid a resurgence in COVID-19 cases and a possible release of crude oil from the US Strategic Petroleum Reserve.
Investors weighed the impact of a potential release of crude oil from strategic reserves in major economies. However, the deteriorating COVID-19 situation in Europe limited the rise of oil prices.
Major forecasters expect an oil market oversupply in the short term. Traders remained attentive to a possible release of crude oil from the US SPR, and surging COVID-19 cases in Europe, which could curb oil demand growth. Money managers cut futures and options in net long positions in ICE Brent.
Europe has also seen a sharp rise in COVID-19 infections, with the continent recording more than 2 million new cases last week. The surge has raised the specter of a return to broad mobility curbs. Meanwhile, the International Energy Agency forecasts a 1.5 million barrels per day increase in global oil supply in November and December, while investors shrugged off an Energy Information Administration report showing a decline in US crude stocks. US crude oil stocks fell 2.1 million barrels in the week of Nov. 12 to 433 million barrels.
African nations are being hurt by Western countries’ efforts to discourage international oil companies from investing in overseas oil and gas projects, Equatorial Guinea’s Energy Minister Gabriel Obiang Lima told Energy Intelligence. Russia says there is no shortage of oil in the global market and there may even be a surplus from early next year. “Inventories have stopped drawing, which shows there is no deficit at the moment,” said Pavel Sorokin, Russia’s deputy energy minister.
US shale oil production is likely to rise in December by about 85,000 barrels per day to 8.3 million barrels per day, the biggest month-on-month increase this year, from more rigs and strong per-well yields, the EIA forecast. Some Chinese regions could face tight gas supplies during peak demand periods this winter, with overall supply and demand finely balanced, but coal supply will be assured, a state planner from the NDRC (National Development and Reform Commission) said.
China is likely working on releasing crude oil from its SPR via auctions, but the move may not garner refiner interest as domestic demand slows down amid pandemic-related curbs ahead of the Winter Olympics. China’s refineries used 13.75 million barrels per day of crude in October, while the total volume of crude available to refineries from both imports and domestic output was 12.86 million barrels per day, indicating the country is drawing down inventories.
In Singapore, margins against Dubai were supported by stronger gasoil demand within the region.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.