Oil clawed back some losses in New York as the dollar weakened, although rising Libyan production and fading hopes for fresh US stimulus pointed to a bearish outlook for the market.
Futures rose 0.5% after tumbling below $39 a barrel on Monday, with a weaker dollar boosting the appeal of commodities priced in the currency. Libya is set to restart the last of its major oil fields following a cease-fire in its civil war, moving the nation a step closer to boosting output to 1 million barrels a day.
Meanwhile, the lack of an imminent US stimulus agreement raised doubts on legislation being written and signed into law prior to the election next week, with the nation facing a renewed surge in coronavirus cases.
While Asia remains a bright spot for global oil demand, a renewed surge in virus cases across the US and Europe is raising concerns the fragile recovery in consumption will be derailed. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said Monday that the worst was over for the market but urged OPEC+ to stay vigilant and stick to its agreed production cuts.
“The infection rates we are seeing in most parts of Europe and the US directly contradicts the economic recovery story,” said Michael McCarthy, chief market strategist at CMC Markets. Extra Libyan production will weigh on the market and sentiment, he added.
Brent’s three-month timespread was $1 a barrel in contango — where prompt prices are cheaper than later-dated ones — compared with $1.02 a week earlier, signaling concerns remain about over-supply.
The return of Libyan supply is an added headwind for the market and OPEC+, which had planned to ease its output cuts further from January. Libya lifted force majeure on exports from the El Feel oil field on Monday after increasing output to 690,000 barrels a day from less than 100,000 in early September.
Meanwhile, another storm front in the Gulf of Mexico may offer some short-term support to prices. Hurricane Zeta made landfall on the Yucatan Peninsula and has already shut in 16% of Gulf oil output.
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