COVID sinks crude oil
It’s a continued slide into the red for crude oil prices at the start of this week.
Crude oil prices start the week on a weak footing
Crude prices took a bit of a beating over the weekend. Slight gains were made on Monday, where highs topped out at around $77 for WTI and $80 for Brent. As of Tuesday morning, however, both benchmarks had slumped back into the red.
WTI futures are currently trading for around $75.79 and are down 0.92% on the day.
Trading 0.52% lower are Brent Crude futures. They are trading for roughly $78.84 at the time of writing.
There is plenty going on that explain the current drop in oil prices.
Firstly, COVID. Rising case numbers across Europe has caused fresh lockdowns in the likes of The Netherlands, Austria, Germany, and Slovakia. These nations could be used as lockdown bellwethers as we head into the winter months. Remember how cases surged last year around this time? We could be looking at that again.
Some countries, like the UK, are banking on high vaccine take up and natural immunity to prevent further restrictive movement measures across the festive season.
Either way, oil traders are feeling cautious. Higher COVID caseloads resulting in widespread lockdowns is likely to put a dent in oil demand for at least the next month. Given we’re trading December contracts, it might be a smart play. Winter is coming.
President Biden and strategic oil reserves
Word is President Biden is tapping up other nations to get them to dip into their strategic oil reserves.
We already saw last week’s US supply concerns trip crude oil up.
US gasoline prices are up 60% this year. Crude oil prices are heading lower, so gasoline prices should start to drop off too (in theory). However, that hasn’t stopped Democrat voices in the Senate pushing Biden towards the strategic oil reserve. Who else will think about all those working-class Americans in their gas-guzzling pickups?
Reports say Biden has reached out to China, India, South Korea, and Japan to coordinate efforts to cool global energy prices. All of the above are major, major crude importers and are no doubt feeling the heat from high energy prices.
The moves comes after Biden previously reached out to OPEC+ to get it to pump more oil. OPEC said no. The cartel is sticking with its 400,000 bpd monthly production increases. Having said that, it does appear OPEC+ is not reaching those 400,000 bpd levels anyway.
In October, it was revealed that OPEC members had jointly increased production by 217,000 bpd. On the other hand, the cartel pumped 650,000 bpd in September, so perhaps October’s fall away was to cover the excess from the previous month.
Still, Biden seems fairly displeased with the cartel of oil production nations. There is even talk of resurrecting the old No Oil Producing and Exporting Cartels Act (NOPEC). It’s unlikely to ever become law, but NOPEC would give the White House the power to sue OPEC+ members for perceived market manipulation. That is kind of OPEC’s job though.
The latest EIA crude oil inventories report is published on Wednesday this week. The previous week’s report, with date for week ending November 12th, showed a two million barrel drawdown.
At 433.0 million barrels, US crude oil inventories are about 7% below the five-year average for this time of year.