Oil poised for worst month since March with growing virus curbs

Oil is set for its largest monthly decline since March as a resurgent pandemic forces tighter restrictions, signaling weaker demand for auto and aviation fuel.

Futures fell as much as 2.3% in New York on Friday and have tumbled about 12% this month. A record surge in daily coronavirus infections in the U.S. has clouded hopes for a rebound in demand, while governments in Europe have increased measures and restrictions to contain the spread of the virus, prompting further reductions in already anemic airline capacity for the remainder of 2020.

“Over the course of this month, it was a sea-change in sentiment,” said John Kilduff, a partner at Again Capital LLC. “The flareups in Covid-19 cases took all the air out of the balloon in terms of a complete, almost opposite, viewpoint that was emerging that there was good news on the treatment front.”

The resurgence in the pandemic is threatening to upend a fragile recovery for oil demand as governments dial back reopening plans. Still, there’s some support from booming freight markets and improvements in China and India. All the while, traders are looking ahead to next week’s U.S. election and an OPEC+ meeting at the end of November.

The concerns over demand come at a time when the Organization of Petroleum Exporting Countries and its allies face a challenge in their efforts to keep supply in check with the faster-than-expected return in Libyan output. Iraq reaffirmed its support for the OPEC+ oil-production cuts and won’t be seeking any exemption from the curbs next year, Oil Minister Ihsan Abdul-Jabbar said.

Meanwhile, Norway’s largest oil field will pump at pre-Covid levels after receiving the government’s permission last month.

“The Libyan cease-fire and renewed output couldn’t have been more ill-timed,” Kilduff said. “The market can’t absorb these barrels.”

The futures curve is also showing signs of weakness. WTI’s front-month contract is poised to close at the deepest discount to its second-month since early September.

The mixed signs on demand are also evident in France where a renewed lockdown is taking effect. Though use of motorways was down last week, data from TomTom NV show that traffic in Paris surged on Thursday night as people tried to leave the city.

However, despite the pockets of strength in demand, the overall outlook continues to be weak. BP Plc will cease fuel production at its Kwinana refinery in Australia, which can process 146,000 barrels a day. It follows the idling of a plant by PBF Energy Inc. in the U.S. earlier in the week.