Oil Gains Ground Despite Worries About Second Wave In Europe

Oil Video 19.10.20.

Oil Ignores New Restrictions In Europe

While many European countries have introduced various virus-related restrictions, most of them have avoided serious lockdowns. Wales, which is part of the UK, was the first one to announce a new lockdown in order to contain the second wave of the virus.

The lockdown will begin on Friday and last for two weeks. During this period, most citizens will work from home while all-non essential businesses will have to close.

Such lockdowns deal significant damage to oil demand but oil traders have managed to shrug off demand worries and continued to provide support to oil near the $40 level.

Perhaps, traders are betting that OPEC+ will keep current production cuts for some more months instead of increasing production levels by 2 million barrels per day (bpd) from January 2021.

Recent reports indicate that OPEC+ countries are worried about the current pace of oil demand recovery. OPEC+ cannot afford another collapse of oil prices because it will signal that it has lost control of the oil market.

In this light, OPEC+ members may be eager to suffer from lower production levels for a few additional months in order to show that OPEC+ is still the leading player in the market.

Libya’s Oil Production Increases To 500,000 Bpd

According to a recent Bloomberg report, Libya managed to restart its biggest oil field, Sharara, and increased its total production to 500,000 bpd. The increase of Libya’s production is another headache for OPEC+ since Libya is exempt from the production cut deal due to the civil war.

Sharara’s production capacity is about 300,000 bpd but current production is near 110,000 bpd. Thus, the field has plenty of room to increase production even if we take into account the potential damage done by the civil war. The continued increase in Libya’s oil production is certainly a negative catalyst for the oil market.

In addition to Libya, oil traders will pay attention to U.S. oil production as the recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 12 to 205.

Most likely, the upcoming EIA Weekly Petroleum Status report will indicate an increase in U.S. domestic oil production. If this increase is not met with higher demand, crude inventories will increase and put pressure on oil prices. Tomorrow, traders will have a chance to take a look at the latest inventory data since API Crude Oil Stock Change report will be released.

For a look at all of today’s economic events, check out our economic calendar.