Oil Plummets As Traders' Covid Induced Concerns Turn Into Panic

Meanwhile, Russia plans on increasing market share once demand recovers

The demand concerns that first gripped traders a week ago blossomed into full-fledged fear on Tuesday, due to rising cases of Covid-19 in some parts of the world.

West Texas Intermediate plummeted $3.01, or 7.6 percent, to settle at $36.76 per barrel, while Brent fell more than 5.3 percent to settle at $39.78, its lowest level since June.

Paola Rodriguez-Masiu, senior oil markets analyst at Rystad Energy, remarked that "Today's oil price move is a clear sign that the market now seriously worries about the future of oil demand.

"The streak of losses is driven by a stalling crude demand outlook for the rest of the year, with rising cases of Covid-19 and the end of the summer driving season in the U.S., as well as Asian refineries putting on [the] brakes."

Bob Yawger, director of energy futures at Mizuho, complained that "The speculative community is bailing at once and the herd mentality is destroying the price of oil" - and indeed, while crude traders were spooked by news of Covid cases on the rise in some parts of Great Britain, Spain, and India, they ignored news that it is dramatically decreasing in the U.S. (which on Tuesday  reported the lowest daily new cases in nearly 12 weeks), the Philippines, Singapore (the fewest new daily cases in nearly six months), South Korea, and many other countries.

Bank of America contributed to the gloom by speculating that it will take three years for demand to recover from the pandemic, "assuming there's a vaccine or cure"; it also believes peak oil will come as soon as 2030 due in part to the rise of electric vehicles.

It's unclear why pessimism over a Covid vaccine persists when so many are in an advanced development stage, the latest being from South Korea's Celltrion Inc., which is beginning commercial production of its vaccine this month as it pushes ahead with clinical trials of the antibody drug.

For his part, John Kemp, commodities analyst for Reuters, thinks part of the problem is that "crude traders are no longer confident that OPEC+ [the Organization of the Petroleum Exporting Countries] has done enough to rebalance the oil market during the remainder of this year and early 2021.

"Unless the economy and oil consumption start to grow more strongly, OPEC+ will need to make sharper cuts in its own production, or prices will drop to curb U.S. shale output more deeply for longer."

Meanwhile, always focused on the longer game, Alexander Novak, energy minister for Russia, on Tuesday said it was "extremely important" for his country to quickly regain, or even raise, its market share once the demand recovers - accomplished by launching unfinished oil wells once the OPEC output reduction agreement expires in 2022.