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Vladimir Zernov
Crude Oil

Oil Video 21.09.20.

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Oil Is Under Serious Pressure Amid Concerns About Sustainability Of Demand Recovery

WTI oil slipped below the $40 level and gained additional downside momentum amid worries about a second wave of lockdowns in Europe. The situation is very tense in France, Spain and UK.

Today, UK health officials were speaking about the current situation with COVID-19 in the country but mostly avoided the topic of a new nationwide lockdown.

That said, they have already stated that pubs and restaurants might soon face additional restrictions, and the market clearly wonders who will be next in the line.

A second wave of lockdowns in Europe will present a very bearish scenario for oil. The European economy has not recovered from the first wave of the virus, and a second wave of lockdowns can send it into a true depression.

While the world central banks have managed to support a robust recovery by slashing interest rates to zero and provided huge monetary stimulus, there’s little they will be able to do in case of a second wave of lockdowns. In this scenario, demand for oil may take a big hit from reduced mobility and the related economic shock.

Libya’s Production Is Set To Come Back To The Market

Libyan National Army General Haftar announced that his troops would end a blockade of Libya’s oil ports, providing the country with the opportunity to export oil.

Libya’s oil production was about 1.2 million barrels per day (bpd) at the beginning of the year but declined to 100,000 bpd due to the blockade. Torn by a civil war, Libya needs revenue from oil exports so it will try to boost its oil production as fast as possible.

This year, Libya tried to increase production but its attempts failed due to political difficulties. This time, it looks like both sides of the conflict may be financially exhausted so Libya’s chances to increase its oil exports look better.

If this happens, OPEC+ will likely have to find additional ways to support the market. Libya is exempted from the production cut deal due to the civil war, so the market may face an increase in production at a time when demand remains under pressure due to the second wave of the virus. In this scenario, inventories will start to increase, putting serious pressure on oil prices.

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

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