Oil Steadies After Pandemic Panic Mitigated By OPEC

But India continues to struggle with demand problems: File Image/PixaBay

Covid fear mongering continued unabated on Tuesday and once again impacted oil prices - but not enough to prevent a small uptick in one benchmark and a lock on the other, thanks to the lingering effect of the Organization of the Petroleum Exporting Countries (OPEC) reporting unusually high compliance in its output cuts.

News media on Tuesday gave wide coverage to the World Health Organization reporting that in the U.S. 11.5 million people have contracted Covid and over 400,000 have died, but paid little attention to hospitalization rates declining due to effective treatments and the disease having a minimal effect on young people.

This in turn has caused some countries in Europe to renew travel quarantines, which impact jet and motor fuel demand; however, Australia's BHP echoed the sentiments of many industry players by remarking that “the most significant risks to the physical [oil] market have now passed.”

That sentiment, combined with Monday's news that OPEC in July achieved a compliance rate of between 95 and 97 percent - as well as expectations it would request continued compliance when the cartel holds a ministerial panel on Wednesday - caused Brent to once again rise, this time by 9 cents, to settle at $45.46 per barrel; West Texas Intermediate was unchanged at $42.89 per barrel.

Presumably the sense of cautious optimism among traders was further bolstered after markets closed by the American Petroleum Institute reporting that crude inventories fell by 4.3 million barrels to about 512 million barrels, more than analysts’ expectations for a 2.7 million barrel draw.

In the spirit of looking beyond the pandemic to new opportunities in the embattled energy sector, Washington's Department of the Interior approved an oil and gas leasing program that is regarded as another step to opening Alaska's Arctic National Wildlife Refuge to drilling; Mike Dunleavy, governor for Alaska, called the decision "a definitive step in the right direction to developing this area's energy potential," which he estimated at 4.3 and 11.8 billion barrels of technically recoverable oil reserves.

But there's no denying Covid fears continue to wreak industry havoc in some parts of the world: according to people familiar with the matter, diesel sales in India (the country's most used fuel) slumped 20 percent in the first half of August from the same period in July, suggesting that the country's economic recovery is stalling.

As for potentially good news about Covid itself, over a dozen scientists told The New York Times that the threshold of herd immunity - the point at which the virus can no longer spread due to not enough vulnerable humans – may well be 50 percent or less instead of 70 percent, and that substantial immunity may have already been achieved in parts of New York, London, and Mumbai.