It’s a dark Monday in the oil market. Traders are finally pricing in Covid-19’s second wave, as the pandemic’s infections break daily records in many countries across the globe.

The latest infection numbers from the US and France, among other nations, are rising by wide margins and restrictions and lockdowns are reinstated globally.

We have long warned that a “second wave” of strict coronavirus restriction measures could be re-imposed, and it’s now happening for real.

The curfew announced in Spain and the partial lockdown in Italy threatens to reduce the countries’ 600,000 bpd and 650,000 bpd road fuel demand as well as further slash the countries’ flight count.

Moreover, the US Covid-case count has risen to a new record just one week before the elections, creating further uncertainty.  Tighter Covid-19 restrictions could come should there be a change of power.

Waiting for a potential vaccine sometime next year won’t save oil demand in the near term, and the market is increasingly scared. Kicking the US fiscal stimulus bipartisan negotiations down the road doesn’t help either. 

On top of the worsening pandemic, supply news are bearish too. Libya has restarted its last main oil field, El Feel, said to be producing soon 70,000 bpd and NOC announced that Monday will be the day marking the end of all port closures and fields.

We are skeptical to NOC’s statement that Libya will be able ramp-up to 1 million bpd in the next four weeks, but with the latest news about El Feel, it will likely get close.

Nevertheless, another firm thorn is stuck into the OPEC+ decision making process.

One this is for sure, OPEC+ awaits for the US election to be behind us before any decision about next year’s supply targets is taken.

In our view, when even Russia is open to postpone easing the production cuts  and since oil demand is being hampered by new coronavirus lockdowns, the tapering will most likely be cancelled and output will remain at current levels, unless of course talks fall completely apart.

Since the next OPEC+ meeting is several weeks away, for prices to recover again we need to see better news on the Covid-19 front. And today’s indications are quite the opposite.

Source: Rystad