However, there remain signs of a crude market rebalance: File Image/PixaBay
The seemingly never-ending concerns over Covid infections in Europe and some parts of the U.S. combined with rising U.S. crude stockpiles caused a major drop in oil prices on Wednesday - over 5 percent to a four month low.
Brent fell $2.08, or 5.1 percent (the lowest close for the benchmark since June 12), to settle at $39.12 per barrel, while West Texas Intermediate fell $2.18, or 5.5 percent, to $37.39.
U.S. crude stockpiles rose more than expected last week as production surged in a record build, and Robert Yawger, director of energy futures at Mizuho, noted that "Between the United States and Libya, production is up almost 2 million barrels per day [bpd] in the past couple weeks."
Andrew Lebow, senior partner, Commodity Research Group
Seemingly things are getting worse by the day
Andrew Lebow, senior partner at Commodity Research Group, added,"This is more of a reaction to concerns over the coronavirus and potential for further restrictions and lockdowns than the crude build; seemingly things are getting worse by the day."
Indeed, Ryan Fitzmaurice, a commodities strategist at Rabobank, said of the 'risk off' market sentiment, "The continued uptick in virus cases, a lack of fresh stimulus, and political uncertainty amid a tightening U.S. election have all soured the near-term outlook."
Presumably souring sentiment even further was U.S. president Donald Trump stating that a coronavirus economic relief package - which is widely viewed as a boon to demand until Covid vaccines become widely available - was unlikely until after next week's election.
However, another ongoing concern for traders - that the Organization of the Petroleum Exporting Countries (OPEC) will go ahead with an easing of production cuts in January - was somewhat diffused with the head of Saudi Aramco's trading arm remarking that OPEC will have to contend with a "lot of demand issues" before raising supply.
Also, despite the spread of Covid, South Korea's S-Oil Corp said on Wednesday that refining margins are expected to improve in the fourth quarter, supported by increased demand for kerosene and diesel ahead of the winter season.
Additionally, U.S. gasoline stockpiles are approaching their five-year average and providing some hope for a market rebalancing: "Any time there's a draw on product, it's a real sign of demand, especially into the end of these shoulder months," said Quinn Kiley, a portfolio manager at Tortoise.