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Despite lifting off the mat on Friday, oil prices remain pressured as mounting Covid-19 numbers and growing lockdown measures threaten demand even as lockdowns do not seem likely to become as severe as March.

Panic and fear of the virus will likely be as problematic, and even if the overall situation this time around could prove less dramatic, it could be quite troubling for oil prices anyway.

Traders had priced the initial downward adjustments to European road fuel demand.

I suspect their initial Eurozone 2nd wave forecast was too optimistic after France intensified the lockdown measure forcing analysts to quickly downgrade their Q4 economic outlooks, which likely intensified the selling pressure.

OPEC+ manages the supply-side to ensure a March rollover repeat in November remains unlikely.

Nonetheless, traders appear to be setting up for a re-run of the associated price collapse we saw then as uncertainly around the end of the month OPEC meeting has the oil complex hedging that it might be too premature for OPEC+ to make adjustments at this stage.

Essentially, there is no budgetary incentive for neither Russia nor Saudi Arabia to cut production unless the oil price reaches mid-$20s/bbl.

But as demand concerns mount, the market talk suggests Saudi Arabia is likely to cut its official selling price for Asia for December when a decision is made in the coming days.

And as recent history offers a clue, the cut could provide even further impetus to sell oil.

It paints a waning global demand picture when the Kingdom needs to discount prices to Asia, which is currently the market demand backbone.

With the looming US election and weaker broader markets, oil prices are under severe pressure once again. I am not sure anyone precisely knows how the post-election stimulus bounce vs. the ongoing Covid-19 beatdown plays out in oil markets beyond the initial favourable bounce.

But one thing that is becoming increasingly apparent is that the build-up to this holiday season could turn quietly chaotic for oil markets as folks will opt to isolate rather than celebrate, and possibly sending both mobility and fuel consumption lower.

Oil prices down in October

Oil followed equities lower Friday, finding some support at the $35 intraday low, ending the month down about 12%. Increased mobility restrictions have sparked concern over fuel demand. Fundamentals remain negative. Now that all the big EU countries have significantly elevated restrictions, which pose the most significant material al downside risk to the global economic outlook.

Assuming these knowns are in the price, the perceived risks into the US election this week and the OPEC+ meeting at the end of November were some of the unknown quotients holding oil prices down into the weekend, as is the fear of more stringent lockdowns.

But even without government-imposed lockdowns, with the winter months still ahead, it seems likely that the localised outbreaks in the US will broaden and weigh on mobility.

Adding to oil market woes

The dollar index ended 1.38% higher on the week as Libya has ramped up production after lifting force majeure at some of its largest oil fields and ports. And OPEC+ is soon to raise output by two million barrels per day (bpd) when its planned curbs end.

The Baker Hughes US oil rig count report is up by 10 to 221, for the sixth straight weekly increase. This is consistent with companies with the wherewithal to pump more barrels before imposing more restrictive producing activities under Biden presidency.

The Dec20/Dec21 spread has widened further to -$3.45 after touching a high of -$1.69 last week. The Arb has widened compared to yesterday’s close but remains in this week’s range at -$1.84, from -$1.75 yesterday. The gasoline crack has retraced to $6.90. Refining margins below $10 put pressure on refiners. Dec20 Brent expires today.

Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi