Black Day for Oil Prices on New Coronavirus Lockdowns

New coronavirus lockdown measures announced over the weekend across Europe, including in the UK, France, and Germany, put an end to the recent oil prices rally with Brent crude falling to $35.74 per barrel, the lowest for the year since late May. Brent, the primary oil price benchmark, is down 45% since the start of 2020.

The overriding fear for the crude markets’ future is that the new lockdown measures will put further pressure on prices as economic activities will inevitably slow down, with a corresponding slump in demand for oil products.

The mere prospect of more people working from home has already had a severely detrimental impact on oil prices. The fewer people there are commuting to work, the less demand there is for oil.

The fall in prices is hitting hard at major oil companies, with BP and Royal Dutch Shell both announcing thousands of job losses for the year. British Petroleum plans to cut a further 10,000 jobs, with Shell expecting between 7,000 to 9,000 job losses.

US WTI crude fell 7% today to a low of $33.64 per barrel. Crude prices in the US are under pressure on the back of the bitterly contested Presidential elections of November 3rd and a bleak outlook for any continued US fiscal stimulus.

“Whichever way you look at it, this coming week will be huge for US and global markets,” said Simon Ballard, chief economist at First Abu Dhabi Bank.

“We see the potential for a sharp rise in volatility around these events and all in the context of a still deteriorating Covid-19 situation across much of the US, Europe, and elsewhere.”

The only bright light seems to be coming from China as the world’s top crude oil importer announced Monday it would raise the quota for 2021 by 20% for non-state-owned companies.

China has seen continued economic recovery from the coronavirus pandemic’s effects with growth for the quarter between July and September of 4.9% compared to the same period last year.

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