Oil slumps as COVID-19 cases grow

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S.

On Friday, U.S. oil fell more than 2% as new lockdowns in Europe to halt mounting infections of COVID-19 sparked concern about the opportunity for demand. At the same time, markets remained on edge over drawn-out vote counting in the U.S. election.

West Texas Intermediate CLc1 was down $1.06, or 2.7%, at $37.73 a barrel at 0538 GMT, after dropping 0.9% on Thursday. Brent crude LCOc1 was off $1.05, or 2.6%, at $39.88, having fallen 0.7% in the previous session.

Italy recorded its highest daily number of infections on Thursday and cases surged by at least 120,276 in the United States, the second consecutive daily record as the outbreak spreads across the country.

“COVID-19’s rampage across Europe and the U.S. is likely to deliver a hit to consumption,” said Jeffrey Halley, senior market analyst at OANDA.

“With no concrete evidence that OPEC+ is moving to slow or reverse the pace of production increases, the supply/demand imbalance has capped oil’s pre-election rally,” he added.

The European Union’s executive commission also cut its economic forecast and predicted the bloc wouldn’t see a rebound to pre-virus levels until 2023.

Vote counting and trends from the U.S. election point to the Republicans retaining control of the Senate, while Democrats are expected to take a slimmer majority in the House of Representatives, dashing hopes for a massive stimulus package, another factor weighing on oil.

President Donald Trump, without providing evidence, late on Thursday said he would win the election if “legal” votes were counted, the latest effort to cast doubt on counting now heading for the third day.

“The most critical questions for oil are how quickly a COVID-19 vaccine is widely available, whether a U.S. stimulus deal can be achieved in a fractious and uncertain political environment, and how OPEC will respond to demand concerns,” said Stephen Innes, chief global market strategist at Axi.

The Organization of the Petroleum Exporting Countries and allies, including Russia, a group known as OPEC+, is expected to delay bringing back 2 million barrels per day of supply in January, given the decline in demand from new COVID-19 lockdowns.

Providing some support for the market, U.S. inventories of crude oil plunged last week. However, much of the fall was attributed to production being shut down as another hurricane swept through Mexico’s Gulf.

Stockpiles fell by 8 million barrels in the week to Oct. 30, against analyst expectations of a rise of nearly 900,000 barrels.

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