Oil Tries To Settle Below The $36 LevelOil gained serious downside momentum after France announced a new lockdown.
Oil Video 29.10.20.
Lockdown In France Pushes Oil To Multi-Month Lows
Yesterday, the President of France Emmanuel Macron announced that the country will have to go through another lockdown. This lockdown will be a bit lighter than the previous one but it is still expected to deal a significant blow to oil demand in France.
Currently, the markets wonder whether other European countries will follow suit. For example, the situation is very challenging in UK but its government is trying to avoid a full lockdown.
At this point, the situation in Europe is the main problem for the oil market although the recent developments in the U.S. are also worrying. Yesterday, the U.S. reported more than 81,000 new coronavirus cases.
While nobody expects that any serious anti-virus measures would be introduced before the U.S. election on November 3, 2020, the U.S. may be ultimately forced to impose additional curbs in case the number of new cases continues to increase. As the U.S. is the world’s biggest economy and the main oil consumer, such scenario will be bearish for oil.
OPEC+ Will Be Forced To Keep Current Production Cuts After January 1, 2021
Yesterday, Saudi Aramco stated that current oil demand was not robust enough to justify boosting oil production. Currently, OPEC+ countries are set to increase their oil production by 2 million barrels per day (bpd) at the beginning of 2021.
However, it is already clear that OPEC+ will be forced to keep current production cuts intact for the first months of 2021 as the world failed to contain the virus and has to deal with a powerful second wave of the disease.
In this situation, demand for oil will be under pressure at a time when Libya plans to increase its oil production from 500,000 bpd to 1 million bpd by the end of 2020.
Libya is exempt from the production cut deal due to the civil war in the country, so OPEC+ cannot stop Libya from getting back to its normal production levels.
Thus, the only option for OPEC+ is to continue with current production cuts for the first quarter of 2021. In the near term, the coordinated action of OPEC+ countries is the main hope for oil bulls.
For a look at all of today’s economic events, check out our economic calendar.