Oil prices were more than 2% lower on Monday.
COVID-related restrictions and cases of peak loads are leading to continued investor concerns.
Oil prices may remain under pressure as Libyan oil fields are expected to come on stream in the coming weeks.
Oil prices lost more than 2% on Monday and oil-related stocks were not spared by the sell-off.
Brent crude oil futures fell about 2.1% to $40.88 per barrel on Monday morning, while West Texas Intermediate futures fell 2.2% to $38.96. The weakness can be directly attributed to a new round of restrictions designed to help contain the spread of the COVID 19 pandemic, the Wall Street Journal reported.
Italy and Spain, in particular, again introduced restrictions on bars and restaurants along with a night curfew. The United States continues to report record daily highs in new cases of infection near the 60,000 mark.
The direct consequence of this is declining demand for gas and other fuels, and this at a time of economic weakness. The problem is that recent data on oil demand “pretty much universally” went in one direction – down, Emily Ashford, energy analyst at Standard Chartered Bank, told WSJ.
Specifically, the world today consumes 9.6 million barrels of oil a day less than in the same period last year.
Among the more severely affected oil stocks is US giant Exxon Mobil Corporation (NYSE: XOM), which was down nearly 3% to $33.18, within striking distance of its 52-week low of $30.11. Elsewhere, BP plc (LON: BP) closed the day 2.3% lower at 2.06 pounds sterling, also not far from its 52-week low of around 1.95 pounds sterling.
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Meanwhile, the Libyan central government has settled a dispute over the distribution of oil revenues, lifting previous restrictions. The country could be ready to increase its oil production to 800,000 barrels per day within 14 days and add another 200,000 barrels within four weeks, the WSJ said.
Libya’s rush to increase its oil production will add a new layer of complications to the organization of oil exporting countries. Specifically, the oil consortium hopes to take measures to balance the oil market and support prices in response to a dramatic drop in demand as a result of the pandemic.
Looking to the future, the oil giant and OPEC heavyweight Saudi Arabia is considering reversing plans to relax cuts in production. The group will meet in November and Ashford told the WSJ that a plan to increase production by 2 million barrels per day in January may be delayed.
Signs of hope: oil contango
Brent crude oil futures contracts that expire in less than a week are trading for nearly $2 a barrel less than similar contracts with an April expiration date, according to the WSJ. If the expiration date contracts are trading at a higher price, this is called “contango”.
A contango scenario typically occurs when the market expects the value of an asset to increase over time.