Adedapo Adesanya
By Adedapo Adesanya
Oil prices extended their 5 per cent slump from Wednesday into Thursday after it plunged by more than 3 per cent as major economies in Europe renewed lockdowns to fight the second wave of the coronavirus.
Brent crude went down to $37.56 per barrel on the back of a decline of 3.99 per cent or $1.56, while the United States’ West Texas Intermediate (WTI) crude fell by $1.30 or 3.48 per cent to close at $36.09 per barrel.
Prices had reacted to the government response to the second wave of the pandemic as oil market participants remain concerned that the return of lockdowns in Europe will significantly weigh on economic recovery and fuel demand.
Two of the largest economies in Europe, Germany, and France, announced the restriction of movements, which the market was not expecting two or three weeks ago.
Many analysts did not believe that countries would resort to another nationwide curfew. However, France did, and from Friday, October 30, people will be allowed to go out only for shopping for essential items, for medical reasons, or for an hour-long exercise. The measure will last until the end of November, French President Emmanuel Macron said.
Germany, the biggest economy in Europe, is also restoring a partial lockdown, for the month of November, restricting social gatherings and closing bars and restaurants except for takeaway.
The market is also feeling the impact of Libya’s return to the game as expectations show that production will reach 1 million barrels per day in the next few weeks, doubling from levels earlier this month.
The opening of two key oil terminals – Ras Lanuf and Es Sider following last week’s ceasefire agreement allowed the country to ramp up production to above 500,000 barrels per day.
These latest developments mean the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) has some tough decisions to make on the path forward for its output curbs next month.
OPEC+ would really need to implement further production cuts, given the weak prospects for demand. The alliance is scheduled to meet on November 30 and December 1 to set policy.
It was reported that the two leaders of the OPEC+ pact, Saudi Arabia and Russia, would be inclined to favour rolling over the cut of 7.7 million barrels per day in 2021, instead of easing them by 2 million barrels per day agreed in the current OPEC+ production deal.
However, it was rumoured that Iraq, the United Arab Emirates (UAE) and Kuwait, the biggest OPEC producers behind Saudi Arabia, appear not to support a rollover of the cut of 7.7 million barrels per day because it is too deep for their economies and budget incomes to sustain.
Due to the environment, oil prices could not capitalise on the prospect of tighter short-term supply as Hurricane Zeta hits Louisiana in the US which reduced production for the day. Instead, the hurricane is forecast to weaken and the return of US production will add to existing oversupply.
Crude oil inventories in the US increased by 4.3 million barrels in the week ending October 23, the weekly report published by the US Energy Information Administration (EIA) revealed on Wednesday. Analysts estimate was for an increase of 1.2 million barrels.
