Covid Fears Cause 5% Crude Selloff As Rough End To 2020 Anticipated

But Goldman and others still forecast steady recovery: File Image/PixaBay

The familiar fear of crude traders that rising coronavirus infections in Europe will cause more government-imposed lockdowns and kill demand resumed full force on Monday, and caused prices to drop by 5 percent.

This despite the worst-hit European country, Britain, stating that the restrictions would be limited this time around.

Brent on Monday settled down $1.71, or 3.96 percent, at $41.44 per barrel, while West Texas Intermediate fell $1.80, or 4.38 percent, to $39.31 per barrel.

Trading was also affected by reports that global refiners are struggling with weak demand and inventory gluts, with refiners in China expected to cut runs in September by 5-10 percent.

Of Monday's trading activity, Gary Cunningham, director of market research at Tradition Energy, remarked, "We're seeing more depressing news on jet fuel demand, [and] we're looking for a much softer market.....the economic picture doesn't look as rosy as it did before."

Still, the fears don't take away from strong economic recovery numbers coming from various parts of the world (most predominantly Asia and the U.S.), which may be why Goldman Sachs maintained its forecast for Brent to reach $49 per barrel by year-end and $65 by the third quarter next year; also, Barclays raised its 2020 Brent outlook to $43 per barrel and $53 next year.

For the record, British health secretary Matt Hancock said his government aims to crack down on socializing, but schools and workplaces would stay open this time out; he also anticipated a vaccine rollout during the first half of 2021 - if not sooner - and a full return to normality by summer.

Meanwhile, New York State reported record low death numbers, and New Zealand's lockdown - arguably the most severe of all in the western world - ended entirely on Monday outside of Auckland.

However, with fear being more contagious than the virus itself, energy leaders are anticipating a tough second half of 2020, case in point being Russell Hardy, chief executive of Vitol, who on Monday said, "If you look at market liquidity, paper activity, ICE futures volumes or gasoil or jet swaps ... everything had a very active Q2, but activity seems to have reduced in Q3.

"Is that because the market is tired and has been at $40 a barrel for so long, because everybody is working from home, or because oil demand is significantly less than what it was and so there is less activity to hedge?"

In a note of optimism, Hardy added that gasoline and diesel demand may return to previous levels in the fourth quarter of 2021, and that "Asian demand growth will pull through and take us beyond 2019 in the years to come."