Crude oil collapsed earlier this week after France and Germany announced new lockdowns in response to surging Covid-19 cases, and now it is set for its worst month since late spring.
Cases are also on a fast rise in the United States as well, threatening to overwhelm some states’ healthcare systems. This, combined with the fact that a new stimulus bill is highly unlikely to be agreed before next week’s election, pressured West Texas Intermediate to some $35 a barrel, the lowest since April when prices took a nosedive on the first round of national lockdowns.
Those, apparently, did not work as hoped for, and although they proved to take a severe toll on economies, fears are rising that more countries could follow in the footsteps of France and Germany. This has understandably darkened the outlook on oil demand and pressured already crippled prices.
Meanwhile, some members of OPEC appear to be reluctant to extend the production cuts that were supposed to be relaxed by some 2 million bpd beginning this January. According to a report citing sources from the cartel and the oil industry, Iraq, the United Arab Emirates, and Kuwait—OPEC’s numbers two, three, and four, respectively—were not realty on board with another extension of deep cuts. That level of production, the source told Reuters, could not sustain their economies. Related: OPEC Members Rebel Over Production Cut Extension
Currently, OPEC+ is enforcing production cuts of 7.7 million bpd, distributed proportionately among members of the group. This means that Iraq, the UAE, and Kuwait are among those with the deepest cuts. And while Saudi Arabia and Russia have signaled they would be willing to extend these cuts for another three months, this is not the case with the other three.
Libya, meanwhile, has reached a production level of 680,000 bpd and is ramping it up further, eyeing 1 million bpd in a month. The country is exempt from the OPEC+ cuts agreement.
To top it all off, the possibility of a Biden win in next week’s vote is also a possibility for a new deal with Iran and an end to sanctions. This would mean more oil coming into the market. Oil prices just might stay truly lower for longer this time.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Tesla Is On Track To Deliver 1 Million EVs In 2021
- The New Energy Reality Is A Massive Opportunity For Investors
- Could Fracking Help Save Colombia’s Oil Dependent Economy?