Oil futures fell precipitously on Wednesday amid mounting fears the oil demand recovery in the United States, the world’s biggest oil consumer, could slow due to Covid-19 cases’ resurgence in New York, which could lead to stricter mobility restrictions in the economic powerhouse North Eastern corridor.

Oil pared some of the losses after the American Petroleum Institute (API) reported a decline in the domestic crude stockpiles, which could temporarily bandage over the oil price haemorrhaging.

However, the oil complex will remain super sensitive to any adverse healthcare or lockdown headline concerns.

So much for the bounce on stimulus hopes as the demand outlook has taken another step back as US lawmakers may ostensibly have little option but enforce harsher mobility restrictions if the Covid-19 curve continues to rise.

The market is already psychologically bruised from the worldwide resurgence and global deaths sadly topping 1 million, which has seen energy trades continually peering over the edge into the Covid-19 abyss for the past few weeks.

Adding to the grim reaper feel, US lawmakers are yet again stuck with the unenviable task of keeping the economy open while safeguarding their constituent’s healthcare concerns.

Rising Covid-19 cases in parts of New York

New York City’s daily rate of positive COVID -19 tests mushroomed over 3 % for the first time in months, raising worries that harsher containment measure could be forthcoming.

NYC officials are reviewing potential restrictions in some of these areas, including banning gatherings of more than 10 people, closing private schools and daycare centres if they don’t meet Dept of Education standards, and issuing fines for not wearing masks.

Perhaps just a stern warning, but if harsher restrictions are placed in densely populated NY areas, it will hit prices even lower.

Still problematic is the deluge of negative Covid-19 news headlines that triggers the virus’s fear. And from motor memory alone, folks will stay at home, which, as we have seen in the past, it’s the fear of the virus that has a more significant impact on skewing mobility data lower than the soft or rolling lockdowns.

Indeed this is what keeps oil traders awake at night and energy bulls stuck in pen.

The conventional wisdom suggests that oil prices should improve after the shoulder season and into the winter months due to heating oil demand.

However, this gives way to far more ominous weather-related concerns. The faster speed of the virus spread in the colder winter months could leave lawmakers with little option but to impose more stringent stay at home mandates as moral compass worries need to take precedent over economic concerns.

OPEC determined to keep supply tight

Near-term prices will continue to be influenced by the global economy’s outlook and gnarly Covid-19 news flows. Still, OPEC +’s continued efforts to keep the market relatively tight and accelerate the draw-down of global inventories should keep the medium-term trend positive.

Oil specialists are becoming increasingly convinced that under-investment in supply in recent years will mean a potential deficit as demand recovers in the coming years.

Have we reached peak oil demand?

In contrast, there are growing concerns about peak demand in some areas because of the more rapid electrification of transport than expected.

I agree the risk of under-supply near the middle of this decade cannot be ignored as can’t the Edison/ candle factory argument either.

Finally, keep an eye on broader markets as simultaneous falls in the inflation linkers and equities markets last week had a surly knock on correlation into oil prices.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp