Sally Boosts Oil, But Covid Fears Continue Despite Strong Economic Figures

The IEA says aviation demand won't recover even in 2021: File Image/PixaBay

After a delayed response, the crude supply disruptions caused by Hurricane Sally led to a substantial jump in oil prices on Tuesday - but analysts still maintained their stance that Covid would cause demand to decline for the remainder of 2020.

With over a fifth of U.S. offshore oil production and key ports closed in anticipation of the storm's landfall on the Gulf Coast, Brent rose 92 cents, or 2.3 percent, to $40.53 per barrel; West Texas Intermediate gained $1.02, or 2.74 percent, to settle at $38.28 per barrel.

But the big focus for analysts was not the potential destruction of Sally but the ongoing destruction caused by government lockdowns to slow the spread of the pandemic: the International Energy Agency on Tuesday lowered its demand expectations for this year by 200,000 barrels per day (bpd) to 91.7 million bpd; it stated that "We expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved."

Neil Atkinson, head of the oil industry and markets division at IEA, told media that an upswing in infections in some parts of Europe reflected "a cause for concern," and therefore his agency believes the perceived economic slowdown will "take months" to reverse completely, while aviation won't return to prepandemic consumption levels "even next year."

Citing the same reasons, Martin Fraenkel, president of S&P Global Platts, speculated that "By the end of 2021, oil demand will still be below where the world was in 2019."

The seemingly lone voice of cautious optimism for the energy market moving forward was provided by Russell Hardy, chief executive of Vitol, who told an audience in Singapore that  oil demand in transportation sectors, with the exception of jet fuel, might return to prepandemic levels by the fourth quarter of 2021, which in turn could help drain a surge of inventories.

He added that about 300 million barrels have been drawn down from this year's peak.

As in past sessions, the contention that Covid is destroying demand doesn't correlate with economic reports, the latest coming from China, where retail sales rose for the first time this year in August and industrial production expanded more than expected.

Also, many parts of the U.S. continue to strongly recover from the lockdowns, with manufacturing in New York state reportedly expanding this month at the second-fastest pace since 2018.

John Kilduff, founding partner at Again Capital, acknowledged these developments by remarking, "Beyond transportation, you really need industrial demand to kick in, factories to be hopping, for there to be a market increase in consumption."

As always, gloomy analysts also ignored ongoing promising vaccine development news, which on Tuesday saw Pfizer say that its late stage candidate's efficacy is likely 60 percent or greater; also, medical officials in China disclosed that three of four vaccines in final trials have already been offered to essential workers, with one possibly ready for general use as early as November.