WTI Falls 5.5% to $37.3
Supply Concerns as Europe Begins Lockdowns
Possible Prolonged Oil Price Decline with 1.9 Million Barrels/Day Increase Early Next Year
[Asia Economy Reporter Naju-seok] As Germany and France implement partial lockdown measures amid the second wave of the novel coronavirus infection (COVID-19), international oil prices have fallen sharply. There are also forecasts that the decline in oil prices will be prolonged as structural demand weakness persists and the scale of production cuts by oil-producing countries may decrease after January next year.
On the 28th (local time) at the New York Mercantile Exchange (NYMEX), December delivery West Texas Intermediate (WTI) crude oil closed at $37.39 per barrel, down 5.5% ($2.18). The December Brent crude on the London ICE Futures Exchange also fell 5.2% ($2.12) to $39.08.
The partial lockdown measures taken by Germany and France to curb the spread of COVID-19 have become a negative factor in the market. There are concerns that the demand contraction caused by lockdown measures in the spring could be repeated. Experts explained, "This plunge in oil prices was driven by a decrease in crude oil demand due to lockdown measures as well as concerns over additional lockdowns."
Besides demand issues, the increase in crude oil inventories in the United States has also been a negative factor. According to the U.S. Energy Information Administration (EIA), U.S. crude oil inventories increased by 4.3 million barrels last week. This is the largest weekly increase since July this year. The problem is that with weak demand, the expansion of crude oil supply has heightened concerns about supply-demand imbalance. Libya, which had difficulties in oil production due to civil war, recently agreed between the central government and rebel forces to resume oil production at 300,000 barrels per day.
Moreover, according to the April agreement of OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies), next year's oil production cut will be adjusted from the current 7.7 million barrels to 5.8 million barrels. While oil demand may plummet again due to the second wave of COVID-19, the amount of oil released into the market is increasing.
Ryan Fitzmaurice, an energy strategist at Rabobank, said, "Today, the preference for safe assets in the global market has caused oil prices to fluctuate," adding, "The spread of COVID-19 and political turmoil such as the U.S. presidential election are worsening market outlooks."
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