After two weeks of back to back losses, oil prices are continuing their decline, a sign that the bearish trend is not going to be so easily reversed.

Losing the psychological 40-dollar mark makes traders wonder how deep the oil price decline be during the second wave of the pandemic.

In reality there are two clear forces that cause the price decline and they are related to the oil balance forecasts.

On the demand side, we are at much better levels since the first wave of the pandemic, but one thing is clear. Demand has not recovered to levels the market hoped for and forecasts are pretty flat for the coming months.

The Covid-19 pandemic is not past us yet and new infection cases continue to mushroom around the world, which in turn affects how key oil-consuming markets work. Even though industry has recovered, travel hasn’t.

Many European countries that partly opened for tourism have reintroduced restrictions and air travel will not soon go back to what it used to be.

The increase in road fuel consumption, which has taken oil demand hand by hand to higher levels since the height of the pandemic’s first wave and has picked up a bit on September, is also slowing down.

While demand is sweating to keep up, supply is accelerating.

The comeback of some of OPEC+ curtailed production is starting being visible in the market, Middle Eastern producers are cutting prices, onshore storages are getting fuller again and offshore storage is in demand.

The pressure that the increasing oil supply is putting may be only getting higher today. Libya’s Haftar seems to be willing to finally resolve the blockade to the country’s oil machine.

If Libya’s production comes back online soon, we are talking about 1 million bod or more, this will be a significant addition to the global balances. And the market is pricing this in today.

The pandemic’s persistence and news from Libya are therefore cancelling any bullish effect that weather-related oil production disruptions in the US would have normally brought.

However, there is room for doubt here, there have been false promises in Libya before about oil production restart. Trading on Libyan statements is nowadays a gamble, so it remains to be seen if its production is really going to return.

Also, a return of Libya would further complicate OPEC+ rebalancing efforts as they meet on Thursday to assess market conditions. The JMMC meeting will be extra interesting this time because the market recovery is struggling while it will become evident that Iraq and other cut laggards will not be able to fully comply by the end of September. So we are in for a noisy week in the oil market.

Separately, the oil super-major BP’s also paints a bleak picture for oil demand in the long term in its Energy Outlook released today, a too bleak one in our view.