Crude Oil Price Crash on Lockdowns, More Downside is Ahead
The crude oil price fell to the lowest level since May as the widening lockdowns across the European region have dented the oil demand outlook. The price fell almost 10% since the beginning of this month, with futures are currently trading around $37 a barrel while WTI futures dipped to the $34 a barrel level on Monday.
The oil demand outlook is significantly impacted by the rising virus infections mainly in Europe and the United States.
The major European countries like France, Spain, Italy, and Germany have imposed lockdown while Britain has also announced a countrywide lockdown for one month. Economists believe lockdowns would significantly slash economic activities and oil demand.
Rising supplies could make a big impact on crude oil prices
Oil supplies have been increasing from both OPEC and non-OPEC players after some stabilization in crude oil prices in the past few months.
The 13-member Organization of the Petroleum Exporting Countries reported oil production of 24.59 million barrels per day (bpd) on average this month, representing a growth of 210,000 bpd from the previous month. The additional oil inflows from Libya and Iraq are adding to oil supplies over the past few months.
The market analysts believe OPEC players are now under pressure due to slowing demand, which could force them to postpone a planned output increase for January 2021. OPEC has slashed oil output by 10% in May to match with supplies.
Slowing Demand could add more pressure on crude oil price
Although the oil price is receiving some support from improving business activities in China and Japan, lockdowns across Europe is weighing on the overall demand outlook. Virus infection in the United States has reached the highest level, putting the government in a position to take aggressive steps to avoid the virus spread.
“The lockdown measures announced by the UK and by Italy are just adding to the deteriorating European situation,”
Michael McCarthy, chief market strategist at CMC Markets in Sydney said.
“A lot of traders are now looking at the U.S. and their rising infection rates and wondering if Europe is providing the model for what will happen in the U.S. in the coming weeks.”