Second Round of Lockdowns A Concern for Crude Oil

Posted on 11/06/2020 12:53 PM

WTI Crude oil futures have trundled around a roughly $10 range since the first of September. Production cuts from OPEC+ member producers have helped manage global supplies. But concerns are growing that those cuts may be extended into 2021 if another round of coronavirus stifles travel. That could mean another trip to the downside for crude futures and more hardship for already struggling drillers and refiners.

A November 3 article on highlights some of the closures in Europe where Austria has imposed stay-at-home orders between 8pm and 6am. Hotels, restaurants and cafes have all been ordered to close and residents are urged to stay indoors.

France is locked-down with restrictions including the stipulation residents stay within 1 kilometer of their homes. Germany went under lockdown on November 2 and U.K officials say the most recent round of lockdowns, which closed pubs, restaurants and shops deemed non-essential for four weeks could well be extended if the virus is not contained.

Lockdowns in these countries will directly impact Kazakhstan, Russia, Saudi Arabia and Norway, many of which, along with other OPEC+ nations rely heavily on oil revenues to keep their countries afloat financially. In a recent post, the Energy Information Administration forecast oil revenues in OPEC+ member nations could fall to lows not seen in nearly 20 years.

The article points out that Saudi Arabia did report a Q3 profit, but also noted that the national oil company Saudi Aramco would be keeping the dividend, 98% of which normally would go into government coffers. This as Saudi Aramco’s profits fell 45%.

Member nations including Iraq and Nigeria are said to be growing weary of the burdensome production cuts. In late October, Bloomberg reported Libya’s daily crude oil output skyrocketed after having been shut-in during tensions between warring factions, each claiming rights to export ports and oil fields. Libyan officials now expect Libya to increase oil production from less than 100,000 barrels per day in September to 800,000 barrels per day by the end of October. What’s more, the nation has designs on increasing output to 1.6 million barrels per day by the end of 2021.

The U.S. Energy Information Administration (EIA) reports in the week ended November 1, U.S. crude oil production stood at 10.5 million barrels per day, down sharply from year-ago at 12.6 million barrels per day. National stocks were reported to have fallen 8.0 million barrels in the report week but remain 37.6 million barrels above the same week last year.

EIA also reported refinery runs have been running below the five-year average since April, forcing several refinery closures both at home and abroad.

If the United States joins European nations in imposing a second round of travel restrictions and attraction closures, the impact on the oil and fuels industry could be devastating and the final nail in the coffin of drilling and refining operations that managed to eek out profitability through the spring shut-ins.

That concern is also weighing heavily on OPEC+ nations as concern over business closures and travel restrictions increase alongside building crude supplies with member nations anxious to open crimped spigots.

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