Oil Falls 2% on Oversupply Fears, Surging COVID-19 Cases

By Adedapo Adesanya

Oil prices fell more than 2 per cent on Wednesday after warnings of potential oversupply and COVID-19 cases in Europe increased the downside risks to demand recovery.

These twin issues battered the Brent crude futures by $2.13 or 2.58 per cent to $80.30 a barrel and crushed the West Texas Intermediate (WTI) crude by $2.49 cents or 3.08 per cent to $78.27 per barrel.

The market swayed fully to the bearish side as signals from The International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) both said that more supply could be on the way in the coming months.

On its part, the IEA said an oil market rally may ease off as prices that hit a three-year high last month help push up global supply, particularly in the United States.

The Paris-based agency noted in its monthly oil report that the world oil market remains tight by all measures, but a slide from the price rally could be on the horizon due to rising oil supplies.

Current prices provide a strong incentive to boost (US) activity even as operators stick to capital discipline pledges, it said.

This is happening as OPEC and its allies (OPEC+) is seeking to maintain a steady increase in output.

Other nations, including the United States, have called for OPEC+ to boost output more swiftly, which has been to no avail.

Instead, it is also seeing signs of an oil supply surplus building from next month, according to the group’s secretary-general, Mr Mohammed Barkindo, who said its members and allies will have to be “very, very cautious” when they review output policy at regular monthly meetings.

“The surplus is already beginning in December. These are signals that we have to be very, very careful,” he said.

New waves of COVID-19 cases in Europe which drove some governments to reimpose restrictions also weighed on prices.

These overrode information from the US Energy Information Administration (EIA) which said crude oil inventories fell by 2.1 million barrels last week, compared with expectations for a build of 1.4 million barrels.

Also, the market is monitoring plans by the US to release oil from the Strategic Petroleum Reserve, though it is generally used during natural disasters or supply disruptions usually caused by wars.