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  • Oil prices remain pressured despite OPEC delay to cuts sentiment.
  • COVID-19 resurgence and increasing stockpiles driving the price lower.

WTI is currently trading at $36.23, off its worst levels of $34.95 having lost its footing from a high of $37.74 as the price of oil extends its losses for the week and futures closing at their lowest settlement in roughly five months.

Rising COVID-19 cases have sparked tighter restrictions across Europe and underlined worries about the outlook for the US and global economic recovery.

Germany and France have announced new measures to restrict the spread, which will no doubt affect demand for crude. The UK is starting down the same path, while Italy, Spain, Portugal and Poland reached new daily case highs.

An ongoing second wave, increasing lockdowns, the return of Libyan supply, a Norwegian deal have all unnerved the oil market in both ways, and the least path of resistance happens to be to the downside.

Crude oil prices came under further pressure after EIA data showed another strong build in inventories.

Domestic oil stockpiles rose 4.32mbbl last week, the most since July.

Demand fears are overpowering the black gold despite rumours of OPEC+ touting a 3m extension, forgoing a relaxation of curbs scheduled for January, which analysts at TD Securities say it suggests that failure to do so would further detract energy prices.

”While a Great Rebalancing will continue to need support from OPEC+ nations, it is also fueled by market-driven declines.

While prices near $40/bbl have kept a chunk of supply from coming back online across the world, further weakness into the $30-35/bbl could also catalyze shut-ins.”

However, the analysts argue that crude’s right tail remains fat:

”All indications from OPEC+ pointing to a likely delay of the scheduled cuts, along with the prospect of normalizing demand expectations, large-scale fiscal stimulus and a potential vaccine announcement shortly following the election, energy markets should have a strong base to move higher into 2021.”  

Adding to the sentiment, the head of Saudi Aramco’s trading unit said that there may not be sufficient demand to absorb the planned OPEC+ supply increase.

Meanwhile, the US presidential election remains a wild card.

Markets are pinning hopes on a victory by Democratic challenger Joe Biden over President Donald Trump but the oil market thus foresees a return to the Iranian nuclear deal.

The prospects of sanctions being lifted could bring between 1.5 million to 2 million barrels a day of oil supply back on to the market.

WTI levels