European Lockdowns to Cut into Oil Demand
November 6, 2020
Crude oil and refined fuel products prices closed lower yesterday for the first time in four trading session due to rising world coronavirus cases causing lockdowns that will reduce oil and fuel demand. Prices were in a very small trading range as there is a lot of uncertainty about the election and rising Covid cases, as well as, other issues. Reports have indicated that equities traders see this gridlock as a good thing as it protects the status quo for now and that has continued to push equities prices higher.
John Kilduff, partner in Again Capital in New York who is highly respected in the energy world said that the new European lockdowns will remove 1.5 million bpd from oil demand and usage. An energy analyst at Sevens Research said that Joe Biden is more likely to impose more lockdowns in the US that would be very negative for oil and fuel demand as well.
The US ISM non-manufacturing services sector index came in well below expectations for October falling down to a reading of 56.6 when a reading of 57.6 was expected.
According to Reuters Royal Dutch Shell RDSa.L will be closing its refinery in Convent, Louisiana. The latest such US facility and first on the US Gulf to shut down since the coronavirus pandemic devastated worldwide fuel demand. This shutdown will occur as they were unable to find a buyer. This is the ninth plant in North America targeted for shutdown or idle since the pandemic, which has dealt a heavy blow to global fuel demand. The energy industry has been impacted hard by the pandemic and as has been seen may times in this industry the impacts of closed plants like this and reductions to capital expenditure by energy companies will result in the next run up in prices at some time in the future when energy demand comes back. The following is from a JP Morgan research piece. Year-to-date, 65 oil and gas companies have filed for bankruptcy and 107,000 direct jobs have been lost between March and August due to the oil price collapse and coronavirus pandemic (according to PricewaterhouseCoopers, the industry supports 9.8 million jobs of total US employment).
Prices are down here in early trading as traders take some profits after four days of higher markets. Prices are likely to see some uptick off the lows before settlement this afternoon into the weekend.