Oil Is Under Serious Pressure Amid Virus FearsOil gained significant downside momentum and is trying to settle below the $39 level.
Oil Video 26.10.20.
Virus Worries Push Oil Below The $39 Level
Coronavirus continues to spread actively in many parts of the world, and oil traders have started to price in the risks of slower demand recovery in the next months.
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Oil has been trading above the psychologically important $40 level for many trading sessions but recent coronavirus data pushed it below the $39 level.
U.S., France and Russia have recently reported record daily increases in the number of new cases while Italy and Spain introduced new virus containment measures.
Most countries have avoided full lockdowns but even limited virus curbs have the potential to put material pressure on demand for oil. The key question right now is whether any major European country will be forced to implement a second lockdown which will be devastating for the Euro Area economy.
At this point, it looks like European governments will try to avoid this scenario at all costs, but oil traders will still follow COVID-19 data closely in the upcoming weeks.
Libya’s Oil Production Will Soon Reach 1 Million Barrels Per Day
In addition to problems on the virus front, the oil market has to deal with the rising production from Libya.
Libya’s National Oil Corp. (NOC) has recently stated that its production would reach 1 million barrels per day (bpd) in the upcoming weeks. Libya’s war factions have signed truce so NOC can intensify its work to boost its oil production.
The rapid increase of Libya’s production at a time when demand is under pressure from the second wave of coronavirus is a material bearish catalyst for oil.
In addition, the number of U.S. rigs drilling for oil continues to increase. The recent Baker Hughes Rig Count report indicated that the number of oil rigs increased by 6 to 211.
While the latest EIA Weekly Petroleum Status Report showed that U.S. domestic oil production declined to 9.9 million bpd, the upside trend in the number of oil rigs indicates that U.S. oil production will soon begin to increase.
At this point, the biggest supportive catalyst for oil is the belief that OPEC+ will keep the current production cuts intact after January 1, 2021 in order to provide additional support to the market. However, it is not clear whether this catalyst will be sufficient enough to keep oil near the $40 level in case the virus situation gets worse.
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