By Geoffrey Smith
Investing.com -- Crude oil prices fell sharply on Monday as part of a general risk-off move across financial markets, triggered by fears of new lockdown measures in Europe and the receding chances of a U.S. fiscal support package.
In oil-specific news, the market continued to labor under the prospect of Libyan supply returning to world markets as a result of a tentative peace deal between the various factions in a long-running civil war. The deal could return up to 1 million barrels a day of crude to world markets, but it has yet to be ratified by either the UN-recognized government or by warlord Khalifa Haftar.
By 9:20 AM ET (1320 GMT), U.S. crude futures were down 2.1% at $40.45 a barrel, having bounced twice from an intraday low of $40.20. The international benchmark Brent was down 2.0% at $42.27 a barrel.
U.S. Gasoline RBOB Futures were down 3.5% at $1.1935 a gallon.
Prices had fallen below $40 for the first time in months over the last two weeks due to concerns over weakening global demand, but had been driven back above that level in the latter half of last week by a fiery speech by Saudi Arabia’s oil minister Prince Abdulaziz bin Salman, at a meeting of ministers from the so-called ‘OPEC+ bloc’ of producers.
The OPEC+ could be forced to respond to the return of Libyan oil with more unilateral output cuts from major producers in the Persian Gulf, according to The Wall Street Journal. It cited an internal planning document that foresaw Saudi Arabia, the United Arab Emirates and Iraq trimming their output by over 700,000 barrels a day to rebalance the market in that contingency.
While there are few other supply-related fears, the pace of the recovery in demand remains a concern: the U.K., one of several European countries experiencing a resurgence in Covid-19 cases, is set to reimpose lockdown measures on at least a regional basis, including in the capital London.
In addition, Chinese refineries are reportedly shaving their runs by between 5% and 10% this year, in the face of high product inventories and low export margins, according to Reuters.
On top of that, fears for the trajectory of U.S. demand are growing as a fresh threat emerged to the chances of a fiscal support packages from Washington. The death of Supreme Court justice Ruth Bader Ginsburg, and the need to find a successor for her, increases the chance of lawmakers being too distracted to work on a compromise package of measures to support an economy where government data indicate unemployment is still running at above 29 million.
The recovery in U.S. fuel demand has already largely run out of steam, with consumption still 13% below last year’s levels, according to the Energy Information Administration.