Oil pares losses after plunging to four-month low on Covid-19 fears
Oil futures eased off session lows as stronger-than-expected US economic growth data and signs that Europe may get more stimulus offset some of the fallout from renewed lockdown restrictions.
Futures in New York pared losses after dropping below $35 a barrel to their lowest since June, while the global Brent benchmark also eased losses after sliding to a five-month low. The US economy saw a record yet temporary surge of growth in the third quarter and European Central Bank President Christine Lagarde signaled a new package of monetary stimulus in December.
“The GDP numbers suggest that there is an end to this situation, that all the news is not going to be negative and at least to some degree we’re seeing economic recovery,” said Michael Lynch, president of Strategic Energy & Economic Research. On the other hand, “all the Covid news seems to be that we’re shutting down, we’re increasing restrictions on behavior.”
The demand outlook is still bleak with the European Union’s two biggest economies to impose month-long movement restrictions as nations across the continent post record coronavirus cases. A sorely needed boost to consumption in the form of US stimulus will likely have to wait until after Nov. 3, with both sides at a standstill a week out from the election.
“The reasons for ebb and flow of risk appetite remain Covid-related, with the announcement of a return to stricter lock down measures in Europe, notably France and Germany,” said Harry Tchilinguirian, oil strategist at BNP Paribas SA. “Add to that the all but vanished prospect of a fourth round of U.S. fiscal stimulus prior to the presidential election and you have a recipe for macro pessimism that is reverberating across various assets today.
The forward market structure is also flashing warning signs, with the WTI strip for 2021 heading for its weakest close since May.
“The market seems to be losing confidence in longer-term demand and is intent on creating an increased disincentive for investment in future capacity,” Standard Chartered analysts Paul Horsnell and Emily Ashford wrote in a report.
Meanwhile, US Gulf operators are still dealing with the effects of Zeta, with Royal Dutch Shell Plc shutting crude and natural gas production overnight in the Mars Corridor due to downstream impacts from the storm.