Oil slides on COVID-19 resurgence, strong dollar

A PetroChina worker inspects a pump jack at an oil field in Tacheng, Xinjiang Uighur Autonomous Region, China June 27, 2018. (Reuters)

SULAIMANI (ESTA) — Oil prices slid on Friday, dragged down by concerns that a spike in COVID-19 cases in Europe and the United States is curtailing demand in two of the world’s biggest fuel consuming regions, while a stronger U.S. dollar also added to pressure.

Brent crude futures for December LCOc1 dropped 22 cents, or 0.51%, to $42.94 a barrel by 0807 GMT, while U.S. West Texas Intermediate (WTI) crude futures for November delivery CLc1 slid 16 cents, or 0.39%, to $40.80 a barrel.

Both benchmarks fell slightly during the previous day, but they remain nearly unchanged from a week earlier.

“The reality is that we’re seeing now a pretty active spread of the pandemic across Europe and it’s spreading again in north America and that potentially will weigh on oil demand recovery,” said Lachlan Shaw, head of commodity research at the National Bank of Australia.

“Against that we still got Libya’s supply is growing quite strongly… It’s a market that could find the demand-supply balance soften a little bit.”

In Europe, some countries were reviving curfews and lockdowns to fight a surge in new coronavirus cases, with Britain imposing tougher COVID-19 restrictions in London on Friday.

Pandemic cases have surged in the U.S. Midwest and beyond, with new infections and hospitalizations rising to record levels in an ominous sign of a nationwide resurgence as temperatures get colder.

Crude also fell as the dollar was headed for its best week of the month on Friday, as surging coronavirus cases and stalled progress toward U.S. stimulus had nervous investors seeking safe assets. Oil priced in U.S. dollars tends to decline when the dollar strengthens as fuel purchases for buyers paying in other currencies become more expensive.

“A higher U.S. dollar against the euro also weighed on investor sentiment,” said Kazuhiko Saito, chief analyst at Fujitomi Co.

A technical committee of the Organization of the Petroleum Exporting Countries (OPEC) and allied oil producers, a group know as OPEC+, ended their meeting on Thursday expressing concerns about rising oil supply as social restrictions to curb the spread of COVID-19 limit fuel usage.

“All eyes are on OPEC+ move from January,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

OPEC+ is set to reduce its current supply cuts of 7.7 million barrels per day (bpd) by 2 million bpd in January even as OPEC Secretary General Mohammed Barkindo admits fuel demand is looking “anaemic”.

The bearish demand outlook and rising supply from Libya may mean OPEC+ could roll over the existing cuts into next year, OPEC+ sources said on Thursday.

There is an OPEC+ meeting scheduled for Nov. 30 to Dec. 1 to set policy.

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