Oil is opening lower in Asia as supply and demand uncertainties take the edge off last week’s bullish lean.
Along with possible lockdowns in Europe, Libya’s output recovery to normal levels, if the current ceasefire holds, are critical risks over 2020.
Crude future dipped at the NYMEX open this morning after the UK government raised a red flag warning that the country is close to the ” tipping point” as new Covid-19 cases surge unabated during September, coinciding with more social activity moving indoors in colder autumn months.
This is raising fears that more wide-sweeping lockdown measure will soon follow.
All the while, oil traders are staying on one’s guard over the prospect of more barrels coming to market after Libya’s National Oil Corporation (NOC) lifts force majeure.
Oil prices are coming off one of their best weeks since June after Saudi Arabia’s stern warning to OPEC+ problem producers and short-sellers alike. Indeed, so much for the OPEC+ JMMC being a ‘non-event’ as a commitment to compensation and the group’s unwavering pledge to fulfil the current production agreement hit square on the mark with oil traders.
Oil futures galloped 10 % higher last week after Prince Abdulaziz pledged his dauntless determination to secure the oil market recovery.
But suppose problem producers abide and fulfil their commitment to compensation. In that case, it will go a long way to easing fears over a production surplus. Excess barrels coming to market would be reduced significantly over the next few months, allowing the oil markets to get through the Achilles heel month of September before heating demand for crude kicks in during October.
Winter months could prove to be one of the bitterest obstacles of them all as we are only in September, and there are further healthcare concerns in Europe where Covid-19 is on the rise again.
In the UK, London’s Mayor Khan is expected to request more wide-sweeping lockdown measures due to the Covid-19 curve moving in the wrong direction.
Also providing the surly eye candy this morning are reports that China teapots are expected to cut run rates in September, led by Petro China with a 5-10 % reduction from August.
Oil has recovered from recent lows, in line with a rebound in broader markets, but will remain sensitive to the pace of the global economic recovery and news about global supply. The near-term upside in US production and the Libyan output recovery to normal levels if the current ceasefire holds are critical risks over the remainder of 2020.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp