Oil Dips On European Union Economic Forecast, Election Uncertainties

However, the U.S. outcome could be good news for the commodity: File Image/Pixabay

The European Union lowering its economic forecast combined with uncertainty over the outcome of the U.S. presidential election caused a drop in oil prices on Thursday, albeit minimal.

Brent settled down 30 cents at $40.93 per barrel, and West Texas Intermediate declined 36 cents at $38.79.

Due to the most recent full-out lockdowns in some parts of Europe to slow the spread of Covid infections, the European Union on Thursday lowered its economic forecast and said the economy would not rebound to pre-virus levels until 2023; meanwhile, the Bank of England said the UK's economy would shrink a record 11 percent over the course of 2020.

John Kilduff, founding partner at Again Capital, believes the government initiatives will remove 1.5 million barrels per day (bpd) of demand, and he remarked that "There's fatigue from the market on the renewed lockdown and the efforts and the damage to be done to the economy."

Downgrading of another kind took place in Saudi Arabia, which cut most oil pricing for its customers in Asia and the U.S. due to the second wave of Covid clouding the outlook for energy markets (Saudi Aramco cut prices for all U.S. grades by 20 cents and raised them by as much as $1 for the northwest Europe and Mediterranean regions).

As for the as-yet undecided presidential elections, current vote counting suggests the Republicans are poised to retain control of the U.S. Senate, while the Democrats will hold a slimmed majority in the House of Representatives - which could be good news for oil as is it would be less likely for the Democrats to advance their green agenda at the expense of the industry.

For his part, John Kemp, commodities analyst for Reuters, focused on all-important global jet fuel consumption on Thursday as key to demand recovery, and he noted that "The recovery in passenger aviation has been uneven because quarantine restrictions have mostly been applied on travel between countries rather than within them.

"Passenger flying has seen a much stronger rebound in large countries such as China and the United States, which have a high share of domestic flights."

Kemp went on to note that if passenger aviation reverts to more normal levels, "it could boost global oil consumption by more than 2 million bpd, accelerating the rebalancing of the oil market" - an outcome he said depends  on the successful deployment of a Covid vaccine and other infection control measures.