Oil Down Again On Covid Hype Despite Increases in Oil And Gas Production

Analysts are worried a second Covid wave will stall recovery: File Image/PixaBay

Regarding it not as a blip but a signal of a stalled economic recovery, oil traders on Thursday reacted to U.S. unemployment benefit claims rising unexpectedly above 1 million by causing crude to fall by nearly 1 percent, in the case of the American benchmark.

The European benchmark declined even further after the Organization of the Petroleum Exporting Countries (OPEC) and its allies stated in its Wednesday meeting that the pace of oil market recovery appeared to be slower than anticipated, and fears are mounting about the prospect of a prolonged second wave of Covid-19.

Some OPEC members mused that the cartel might need to cut output by an extra 2.31 million barrels per day (bpd) to make up for recent oversupply.

With sentiment largely driving these fears, Brent on Thursday fell $1.24, or 2.7 percent, to $44.13 per barrel; West Texas Intermediate settled 35 cents, or 0.82 percent, lower at $42.58 per barrel.

Emily Ashford, energy analyst at Standard Chartered Bank, summarized trading behaviour by remarking, "While oil-market fundamentals may have started to normalize, much of the progress comes from the supply side, while demand continues to disappoint."

As in past sessions, numbers suggest one scenario, but on-the-ground activity suggests another: in Russia, for example, oil and gas condensate production reportedly increased to an average 9.78 million bpd between August 1 and 18, up from July's average of 9.37 million bpd.

In Norway, a survey published on Thursday showed that oil and gas investments in Western Europe's top producer will rise more this year and decline less in 2021 than predicted a few months ago,

Meanwhile, Larry Kudlow, economic advisor to the White House, said on Thursday he expects between 20 and 30 percent growth in the third and fourth quarters of 2020.

But oil experts were not in the mood for optimism: Tamas Varga, analyst at PVM Oil Associates, stated what was required to get the energy sector back on the right track: "All roads in global and regional economies lead to the containment of the virus, and the end of these roads is not in sight yet."

Varga's observations notwithstanding, although the U.S. infection rate has been widely portrayed by media as out of control, many former 'hot' states (including Florida) are on the decline, and hospitalization rates continue to drop.

Also, Kudlow pointed out that despite the bump in unemployment benefit claims, Americans  "created over 9 million jobs...in the last three months."

Finally, and technically-speaking, the end of the pandemic (if not the fear) is indeed in sight, with many countries in final Phase 3 vaccine trials (including Russia, after initially deciding to bypass them) and Peru being the latest country to trial China's Sinopharm vaccine; the overwhelming consensus is that mass vaccinations will begin at the end of this year or the beginning of next.