Oil Is Losing Ground As Virus Fears Return

Oil Video 06.11.20.

Situation With Coronavirus In The U.S. May Be The Next Big Problem For The Oil Market

In recent weeks, oil found itself under significant pressure amid worries that lockdowns in Europe will cut demand for oil at a time when Libya, which is exempt from the OPEC+ oil production cut deal due to the civil war, continued to increase its production.

However, oil managed to rebound from the recent lows on hopes that OPEC+ will keep the current production cuts for the first months of 2021 in order to provide additional support to the market. The recent inventory report also provided the much-needed help for the market.

Meanwhile, it looks lke the market will have to deal with an emerging problem in the U.S. The news headlines are mostly dedicated to the presidential election race between Donald Trump and Joe Biden, but yesterday U.S. reported a record number of new coronavirus cases.

The current trend in the number of daily cases is not encouraging at all, and U.S. may have to implement additional virus containment measures once the election is finally concluded and the winner is announced.

At this point, the second wave of anti-virus measures in the U.S. looks like a real risk for the oil market, but it remains to be seen whether any serious measures will be implemented as they would deal a huge blow to the economy.

Iraq Did Not Comply With Its Quota In October

A recent report from Argus indicated that Iraq did not manage to comply with its production quota last month. In addition, Iraq’s production increased by 242,000 barrels per day (bpd).

It looks like the situation in Iraq is going to be a major headache for OPEC+ which is now “obliged” to maintain current production cuts for the first months of 2021 due to lockdowns in Europe and emerging problems with the virus in the U.S.

In addition, OPEC+ must ensure compliance by all members or the current production cut deal will simply disintegrate. Most likely, Saudi Arabia will try to put some informal pressure on Iraq to force it to comply with the deal, but the situation is very challenging as Iraq badly needs additional income from oil exports.

For now, the oil market has not priced in any problems with the extension of current production cuts. If such problems arise, oil will find itself under pressure.

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