Zeta Boosts Oil Prices, But Libya And Covid Still Dragging Down The Market

However, BP defied demand worries by reporting a 3rd quarter profit: File Image/PixaBay

Tropical storm Zeta was credited on Tuesday for a modest boost in oil prices, but new Libya output combined with an impending production increase from the Organization of the Petroleum Exporting Countries (OPEC) and ongoing Covid infection concerns were said to cap the gains.

As an already downgraded Zeta caused the closure of some U.S. Gulf of Mexico production by BP, Chevron, and Equinor, Brent settled up 75 cents at $41.21 per barrel and West Texas Intermediate gained $1.01 to $39.57, a marked improvement compared to Monday's 3 percent drop.

However, Jim Ritterbusch, president of Ritterbusch and Associates, reiterated the persistent problem facing the crude market: "As long as the threat of renewed partial [Covid] lockdowns exists, the oil complex will need to price in some renewed softening in demand."

Also, Libya's production was expected to rebound to 1 million barrels per day (bpd) in coming weeks, which complicates OPEC's plan to increase production by 2 million bpd from January after record output cuts this year.

Further exacerbating the matter is that the latest weekly U.S. oil inventory figures due later this week are expected to show a rise of about 1.1 million barrels.

In the broader scope, adding fuel to the notion that oil may be a sunset industry, the Colombia government on Tuesday said its oil and coal exports will fall by 16.9 percent and 28.4 percent respectively over the next 10 years - although better prices for both fuels will soften the declines.

This coincides with the Norwegian Petroleum Directorate stating on Tuesday that oil firms will drill just 30 exploration wells off the coast of Norway this year, the lowest level in 14 years - however, Norway has doubled down on a strategy to extend the industry's lifespan, and the reduced exploration is the result of managing spending during the pandemic.

Still, the perception that crude demand during the pandemic is declining continues to be challenged: on Tuesday BP reported a cost profit of $100 million for the third quarter, beating analyst expectations (which had predicted a $347 million loss) as the company benefited from stronger oil prices and the absence of significant exploration write-offs.