Oil poised for volatility amid uncertainty stoked by US President testing positive for Covid-19

Libyan production coming back on stream is also adding downward pressure on crude prices

The IEA left its overall demand estimate for 2020 unchanged at 91.7 million bpd down 8.4m bpd from 2019. Reuters

Oil markets are poised for turbulence after futures in New York and London settled below $40 a barrel on Friday after news of US President Donald Trump contracting Covid-19.

Brent, the international benchmark for more than half of the world's crude, fell by 4.06 per cent to settle at $39.27 a barrel on Friday.

West Texas Intermediate, the key US crude gauge, was 4.31 per cent lower at $37.05 a barrel at the close of trade. WTI registered an 8 per cent weekly loss, while Brent fell 6.3 per cent during the period.

The benchmarks had a volatile day of trading after Mr Trump, 74, and first lady Melania Trump tested positive for the novel coronavirus on Friday, just a month before the November 3 presidential election.

Mr Trump was moved to a military hospital for treatment, a White House official said on Friday, as his administration and election campaign scrambled to adjust to an extraordinary twist in his turbulent presidency.

He will stay at the Walter Reed military hospital in Bethesda, Maryland, for the next few days, according to the White House officials.

"Oil remains the weakest link to the Covid-19 headlines as it reinforces the view that anyone, even the [US] commander-in-chief, is susceptible to the virus," said Stephen Innes, chief global market strategist at Axi.

"The risk-off reaction to Trump's positive Covid-19 test feels like the last of the Biden pricing is getting done."

Democratic nominee and former vice president Joe Biden is increasingly favoured by the polls to beat Mr Trump and become the next US president. The two candidates faced each other at a gruelling presidential debate last week.

The news rattled stock markets and sent investors fleeing to haven assets. Gold rounded off its best week in about two months, with the Japanese yen also registering advances.

Wall Street also reverberated with the impact of the coronavirus’ impact on US leadership, with the Dow Jones Industrial Average falling 0.48 per cent. The S&P 500 index lost steam, declining 0.96 per cent, while the Nasdaq Composite fell 2.22 per cent.

"Brent crude oil prices have been under pressure over the last two days. Risk aversion set in on Friday after President Trump tested positive for Covid-19, raising concerns about how this development will impact the presidential election. A combination of other factors had already dragged oil prices lower on Thursday,” said Giovanni Staunovo, a commodities analyst at UBS.

The Swiss bank, however, maintained a positive outlook on oil prices for the next 12 months, citing an undersupply in the market due to falling inventories.

UBS expects Brent to average $45 per barrel by the end of this year and sees the benchmark rising to $50 per barrel towards the end of the first quarter in 2021.

Efforts by the Opec+ group of producers that contributed to reducing oil inventory from the markets is expected to continue well into the next year. The alliance, led by Saudi Arabia and Russia, is cutting 7.7 million barrels per day and is likely to implement tapered curbs into April 2022.

Libyan oil production coming back on stream and its exports hitting the market are also partly responsible for the downward pressure on oil prices, according to some analysts.

"Libyan restarts may or may not be sustained, but there is also a renewed focus on Iran with some tanker-tracking firms reportedly seeing a strong increase in exports from the country in September,” consultancy JBC said in a report on Friday.

"We don’t doubt the possibility of some uptick in volumes, but are much more cautious about taking the possibility of higher numbers (e.g. 500,000 bpd-1m bpd) seriously without more substantial evidence at this time,” the report said.

A disappointing US jobs report on Friday also proved a drag on stocks and oil prices. Non-farm payrolls rose by 661,000 jobs, well below analyst expectations of 850,000. The gains were the smallest since the world’s largest economy began to see a recovery in employment in May. Around 22.2 million jobs – the equivalent of gains made since the financial crisis –  were lost in March and April at the height of the coronavirus pandemic in the US.

The country has the largest global tally of Covid-19 with 7.5 million infected and 213,524 dead as of Saturday, according to Worldometers, which tracks the pandemic.