The oil market is swinging from minor losses to minor gains and back this morning as volatility returned in a new price environment that the last couple of days created.

Oil prices took quite a beating in the last two days that is causing a monthly back-to-back decline.

This was not an unexpected development as the reason prices were above 40 dollars until recently was wishful thinking by traders that the pandemic’s second wave would be somehow avoided or that it would hit in a much smoother way.

Yet, Covid-19’s comeback is far from smooth. Many nations with high oil consumption across the world are seeing infection levels that they didn’t have even during the first wave.

These infection levels are destined to bite oil demand, as traffic will be curbed to minimum during the coming lockdowns. Demand will not fall as much as during the pandemic’s first wave as the world is now better prepared, but is sure to take a hit.

Europe’s two largest economies, Germany and France have resorted to the very thing governments pledged not to use again, lockdowns.

Although the measures are more targeted this time with schools and large parts of the economy such as factories remaining open, the return of France’s infamous “attestation” threatens to chop off 650-850,000 bpd of oil demand in November and Germany’s lockdown could potentially remove a similar amount.

The market seems to have been pricing that the worst was indeed behind us, expectations were set for a slow but sustained recovery.

But just as we have been warning the demand recovery ran out of steam. Many participants ruled out full lockdown measures like the one we are seeing in France right now, and the market seems to have taken for granted that life during the third quarter was the new normal, with some restrictions in place, but moving like business as usual.

The measures that we are seeing right now are a wake-up call for the market that we are not out of the woods yet, and the alarms aren’t ringing anywhere louder than at the offices of OPEC+ ministers.

This new impasse in oil demand comes just as the alliance is set to taper off agreed cuts and as Libya shocks the market with 600,000 bpd of unneeded supply.

This price development will strain test the collation’s ability to keep acting as the World’s Oil Central Bank. Taking action again and postponing opening the oil taps further from January is now surely on the alliance’s table and it would even be a surprise if the option is not openly considered in the next meeting.