Oil held losses in Asia after plunging the most in almost two weeks amid signs a resurgent coronavirus could lead to more lockdowns.
Futures in New York edged lower toward $39 a barrel after dropping 4.4% Monday amid a broader market sell-off. More restrictions in the UK and a warning the US could experience another cycle of the virus damped sentiment, while prospects for more fiscal stimulus were damaged by a partisan battle over replacing Supreme Court Justice Ruth Bader Ginsburg. The expected reopening of Libya’s battered oil industry also weighed on the market.
Tropical Storm Beta, meanwhile, is bringing flooding to Texas and is set to hammer Louisiana, but isn’t expected to cause many issues for onshore refineries. Interruptions to offshore rigs aren’t likely to be long-lasting.
Prices jumped 10% last week after Saudi Arabia indicated it would defend the market, but the consumption outlook remains shaky as the virus stages a comeback in some countries and hasn’t been brought under control in others. China’s biggest oil company said it sees demand for refined petroleum products in the world’s biggest crude importer peaking around 2025, while BP Plc became the first supermajor to call the end of the era of oil-demand growth.
“There’s now an increased possibility of lockdowns in various countries weighing further on oil demand,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. The revival in Libyan output isn’t likely to have a major impact as it’s uncertain how soon production can be ramped up, he said.
Brent’s three-month timespread was $1.33 a barrel in contango — where prompt contracts are cheaper than later-dated ones — compared with $1.80 at the beginning of last week. The change in the global benchmark’s market structure indicates concern about over-supply has eased a bit.
Libya told companies to resume production at some fields that are free of foreign mercenaries and fighters. Oil output is set to reach 310,000 barrels of oil a day in a few days from the current level of 90,000, according to a person with direct knowledge of the situation. The North African nation, which has been wracked by civil strife, could be pumping 500,000 barrels a day by the end of the year, Goldman Sachs Group Inc. forecast.
US crude stockpiles fell by 2.8 million barrels last week, according to a Bloomberg survey before official government figures due on Wednesday. That would be the second straight weekly decline.