Despite risk sentiment stabilising, oil markets are still feeling the after-effects from Monday’s Covid-19 curve shocker.
The sensitivity of the oil market to Coronovirus concerns is still weighing on price action. Those fears were amply on display Monday over a second wave’s potential economic effects; with oil prices, keen responsiveness to mobility demand, the EU and UK Covid-19 curve shock inevitably sent crude price lower.
The reimposition of a full-scale circuit breaker or wide-sweeping mobility restrictions in developed economies is unlikely.
But the back and forth attempts to balance the pandemics healthcare concerns and still keep the economy open are likely to play out to unsettled price action until a vaccine becomes available.
The oil demand recovery may have gone as far as it can in the absence of a vaccine, as daily virus case growth has remained high in Latin America, the US, and India, and is rising again in Europe.
Unquestionably, these worrying case count concerns will ultimately keep demand uncertainty in the fore and could keep a lid on near-term prices.
Still, oil was under additional pressure following the news that an extended ceasefire in Libya sees some shut-in production return.
But in practice, this could be easier said than done. It seems unlikely that Libyan production will rebound as quickly as it has in previous periods as the latest pictures from the war-ravaged facilities would suggest there is a high level of damage to production and transport infrastructure.
OPEC+ has built a significant cushion into the system as trustworthy and highly quantified estimates show 3mb/d oil deficit over 4Q20.
That could absorb Libyan production while leaving the market relatively tight. OPEC+ will still need to factor any Libyan increase and manage whatever winter times scare Covid-19 has up its sleeve.
So, OPEC communication will be vital to keeping sentiment on an even keel until Asia and US demand picks up more convincingly or a vaccine is in hand.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp