(Bloomberg) -- Oil slid to a three-week-low amid concerns that rising coronavirus cases coupled with diminishing prospects for a U.S. stimulus deal will crimp the demand recovery.
Futures in New York fell 3.2% on Monday as hopes of a virus relief package before the election faded. At the same time, Europe took a step closer to the strict rules it imposed during the initial wave of the pandemic, while in the U.S., Texas is opening field hospitals to handle the overflow of Covid-19 patients.
Fresh threats to a rebound in oil demand coincide with the continued return of Libyan output, which has risen to 690,000 barrels a day from less than 100,000 in early September. The country is poised to restart the last of its major oil fields following a cease-fire in its civil war, and will boost exports of crude from its biggest field to over 168,000 barrels a day next month.
“It looks like a deal’s not going to happen before the election, considering the election’s right around the corner, while the Covid numbers look worse and worse” said Michael Lynch, president of Strategic Energy & Economic Research. “That’s making people think at least some economic slowdown is going to occur.”
More than half a year since the pandemic sent oil prices into a tailspin, the prospect of renewed lockdown restrictions is threatening to derail the fragile recovery in consumption. European diesel demand would drop by a quarter year-over-year and gasoline demand could fall by 30% year-over-year over a three-month period under a scenario that models a near-full scale lockdown, according to JBC Energy. Meanwhile, Saudi Arabia’s energy minister said at a conference that even though “the worst part is over” for the oil market, OPEC+ must stay vigilant and stick to agreed production curbs.
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Oil prices will likely “remain relatively range-bound for the foreseeable future and especially until the market gets clarity with respect to the upcoming U.S. presidential election,” said Ryan Fitzmaurice, commodities strategist at Rabobank. “That will likely be a key factor in the OPEC+ decision making process going forward.”
Other areas of the market are pointing to further signs of weakness for crude. The spread between WTI’s nearest contracts widened to its deepest contango since early September.
At the same time, December $40 put options, which profit a buyer from a decline in futures below $40, have traded over 13,600 times on Monday, according to preliminary exchange data. Volatility may in be store for the contract before it expires Tuesday, with $40 put options having over 24,000 in open interest as of Friday’s close.
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