Oil prices edge lower on demand concerns as Covid-19 cases grow

Analysts say rising Iranian oil exports, growing oil and gas rigs in the US and a resumption of Libyan oil exports also weigh on prices

Oil prices dipped on Monday on demand concerns due to rise in the number of coronavirus cases across the globe. AFP
Oil prices dipped on Monday on demand concerns due to rise in the number of coronavirus cases across the globe. AFP

Oil prices edged lower on Monday over concerns that rising coronavirus infections across the world could revive mobility restrictions and reduce demand for crude.

Brent, the benchmark under which two-thirds of the world’s crude is traded, was down 0.48 per cent at $41.72 per barrel at 2.10pm UAE time. West Texas Intermediate, which tracks US crude, was down 0.67 per cent at $39.98 per barrel.

Global coronavirus cases continued to climb, especially in countries like India and the US, which are among the top oil-consuming countries in the world. India’s total coronavirus cases reached more than 6 million as of Monday, according to Worldometer, which tracks the pandemic. The US, on the other hand, has recorded more than 7 million infections. Globally, the number of cases rose above 33.3 million.

“Demand is being weighed as the coronavirus cases increase shows no sign of slowing down in the US and is plaguing Europe again. A resurgence in Covid-19 cases would hit fuel demand further as air travel remains heavily restricted,” Avtar Sandu, senior commodities manager at Singapore-based Phillip Futures, said.

An increase in Iranian oil exports as well as a rise in the number of US oil and gas rigs are also weighing on oil prices.

"Iranian oil exports have risen sharply in September in defiance of US sanctions, three assessments based on tanker tracking showed. Although exports have shrunk from over 2.5 million barrels per day since the US withdrew from a nuclear deal with Iran and reimposed sanctions in 2018, still, Iran had been working to get around the measures and kept exports flowing,” he said.

In addition, US energy firms added more oil and natural gas rigs for a second week in a row last week. Active US oil rigs rose by 4 in the week ended September 25 to 183 rigs, Mr Sandu said, quoting data from the energy services firm Baker Hughes.

“The oil and gas rig count is an early indicator of future output. In September, the rig count rose [for] a second month in a row after dropping for seven consecutive quarters,” he said.

Supply is also expected to increase from Libya, which said last week that three of its ports are open for business, after the Libyan National Oil Corporation lifted a force majeure on terminals it considered safe.

Crude prices have been propped up by an output reduction deal by the Organisation of the Petroleum Exporting Countries (Opec) and its allies including Russia after a pandemic-driven slowdown in demand pushed prices to a low in April.

Opec+, as the group is known, initially cut production by 9.7 mbpd between July and May. However, this target was reduced to 7.7 million bpd starting from August 1 as demand for oil recovered due to the easing of movement restrictions.

Mohammad Barkindo, secretary-general of the Opec, on Sunday said oil producers participating in the output curbs have stepped up efforts "to ensure fully and timely conformity, both collectively and individually".

“At the most recent meeting of the Joint Ministerial Monitoring Committee (JMMC) on September 19, ministers welcomed overall conformity of 102 per cent, reiterated the importance of compensating overproduced volumes as soon as possible," Mr Barkindo, said while delivering a speech at an online meeting of G20 energy ministers.

He added that world oil demand in 2020 is expected to contract by 9.5 million bpd, while non-Opec production will decline by 2.7 million bpd.

“The expected supply and demand balance would result in OECD (countries’) commercial stocks standing well above the latest five-year average in the third quarter of 2020. However, stocks would then fall in the fourth quarter of 2020, to stand around 123 million bpd above the latest five-year average.”

Updated: September 28, 2020 07:35 PM

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