Oil Up, but Outlook Dim over Rise in Virus Cases and Supply

Oil prices rose on Tuesday after recent sharp losses in energy commodities. Market sentiment remains muted with coronavirus cases surging globally hurting the outlook for crude demand while supply is rising.

By 0751 GMT Brent crude (LCOc1) was up 33 cents, or 0.8%, at $40.79 a barrel. Moreover, U.S. oil (CLc1) gained 28 cents, or 0.7%, to $38.84 a barrel. Both contracts declined more than 3% on Monday.

A lack of progress on a U.S. coronavirus relief package added to market gloom. On Monday, U.S. House of Representatives Speaker Nancy Pelosi said she hoped a deal could be reached before elections.

A wave of COVID-19 infections sweeping across the United States, Russia, France among other countries has weakened the global economic outlook. As winter looms, record numbers of new cases are forcing some countries to impose fresh restrictions. 

Commonwealth Bank of Australia commodities analyst Vivek Dhar said they think demand from this point onwards will struggle to grow. COVID-19 restrictions are all part of that, he added. 

CBA expects U.S. oil to average $38 and Brent to average $41 in Q4 2020.

Prices gained some support from a potential drop in U.S. production. Oil companies began to shut offshore rigs with the approach of a hurricane in the Gulf of Mexico.

Organization of the Petroleum Exporting Countries

The worst is over for the crude market, said Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman on Monday.

But his comment was contrary to an earlier remark from the secretary general of the OPEC. The secretary general has said that any oil market recovery may take longer than hoped. This is because coronavirus infections are currently rising around the world.

Eurasia Group said in a note that this dynamic will likely weigh on oil prices for the rest of 2020. It will likely exert pressure on OPEC and its allies to keep restricting supply well into next year. That is to try and protect Brent above $40 per barrel.

In the coming weeks, Libyan production is expected to reach 1 million barrels per day (bpd). This was a statement from the country’s national oil company on Friday. It’s a quicker return than many analysts had predicted, complicating efforts by OPEC to restrict output, the statement added.

OPEC and allies including Russia, known as OPEC+, is planning to increase production by 2 million bpd. That will be from the start of 2021 after record output cuts earlier this year.

A survey estimated that U.S. crude stocks increased in the week to Oct. 23, while gasoline and distillate inventories decreased. This was based on an analyst survey ahead of data from the American Petroleum Institute on Tuesday. Additionally, the U.S. Energy Information Administration on Wednesday.