Oil Price Fundamental Daily Forecast – OPEC+ May Have to Reign In Production Cuts to Avoid Steep DeclineOil prices could continue to weaken over the near-term due to the unexpected speed of the ramp-up of Libyan exports.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Monday, following through to the downside after posting its first loss in three last weeks.
Traders are being spooked into selling due to a jump in COVID-19 infections in the United States and Europe, which spiked concerns over future crude demand. Meanwhile, worries over increased supply also weighed on prices.
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New Demand Worries as COVID-19 Cases Surge
The decline in WTI and Brent crude oil futures came amid a record surge in new coronavirus cases in the U.S. The country saw more than 83,000 new infections on both Friday and Saturday after outbreaks in Sun Belt states, surpassing a previous record of roughly 77,300 cases set in July, according to data from Johns Hopkins University.
Additionally, White House chief of staff Mark Meadows said Sunday that the U.S. will not get control of the pandemic amid the surge in new cases. Vice President Mike Pence’s chief of staff and three aides tested positive for coronavirus, but his office said he will not quarantine himself.
The resurgence of the coronavirus in Europe has continued apace in recent days, with France reporting a record daily rise in new infections on Sunday, Italy ordering bars to close early and shutting public gyms and Spain issuing a nationwide curfew to stem a worsening outbreak.
Libya Continues to Ramp Up Exports
Libya’s National Oil Corp (NOC) has lifted force majeure on exports from the ports of Es Sider and Ras Lanuf, it said on Friday, adding that output would reach 800,000 barrels per day (bpd) within two weeks and 1 million bpd in four weeks.
Libyan oil output has recovered to about 500,000 bpd since the end of the blockade, far from the 1.6 million bpd it was producing before the country’s civil war.
Oil prices could continue to weaken over the near-term due to the unexpected speed of the ramp-up of Libyan exports. Additionally, the resurgence in COVID-19 cases in Europe and North America has essentially brought the recovery in demand to a standstill.
The markets aren’t in major trouble yet, but if the sell-off starts to accelerate to the downside then OPEC+ will have to delay its plan to increase production reductions, currently scheduled for January 1.
Last week, Russian President Vladimir Putin indicated he may agree to extending OPEC+ oil production reductions. This provided a little support so we are confident that an OPEC+ decision to make the move would be supportive for prices.