Heavy COVID-19 Impact on Demand Strangles Oil Prices

By Adedapo Adesanya

Crude oil futures were strangled on Friday, with both major benchmarks posting their third weekly decline in four weeks as worries about the demand outlook have grown in response to rising COVID-19 cases.

The Brent crude fell 13 cents or 0.31 per cent to $41.81 per barrel while the United States West Texas Intermediate (WTI) crude lost 22 cents or 0.55 per cent to $40.09 per barrel.

A rising number of COVID-19 cases have prompted the resumption of movement restrictions in some European countries. This signalled weakened demand as daily increases of coronavirus infections are hitting records and travels are being limited.

In the world’s top oil consumer, the United States, infections rose in some parts and now, the government may be considering renewed shutdown mandates as more than 200,000 people have died of the virus in the nation.

According to market analysts, investors have become more cautious this week as the recent surge in cases have increased questions over what a second wave could mean for the world economy and resource demand.

Equally, the sour outcome can also be attributed to a rebound in the US dollar this week. This has also weighed on dollar-denominated oil prices.

A lack of agreement to provide additional stimulus from Washington has added to worries the US economic rebound will lose steam heading into year-end considering that the presidential elections will hold in November.

At the same time, more crude oil is entering the global market, causing supply to outweigh demand and thereby pushing prices lower.

Libyan output is set to pick up after a military commander moved to lift a blockade of ports that has virtually strangled production for the past eight months, this could add close to 300,000 barrels per day to the market.

Oil giant, Shell, has provisionally booked the first crude tanker to load at Libya’s Zueitina terminal since January.

In Iran, oil exports have risen sharply in September despite US sanctions and difficulty to adhere to planned oil output cuts from the Organisation of the Petroleum Exporting Countries (OPEC) and its allies.