Oil falls as virus cases mount, US debate looms

Rising number of new corona cases in US, Europe limits upside potential for oil

LONDON:

Oil prices dropped on Tuesday as Europe and the United States grappled with a surge in new coronavirus infections and investors remained cautious ahead of the first US presidential debate.

Brent’s November contract LCOc1, which expires on Wednesday, fell $0.63, or 1.5%, to $41.80 a barrel by 1342 GMT. The more active Brent crude contract for December LCOc2 fell $0.67, or 1.6%, to $42.20. US West Texas Intermediate (WTI) crude CLc1 fell $0.81, or 2%, to $39.79.

More than one million people worldwide have died from Covid-19, according to a Reuters’ tally, a bleak milestone in a pandemic that has devastated the global economy and demand for fuel.

“Rising numbers of new corona cases in the United States and Europe are limiting the upside potential (for oil prices),” said Commerzbank analyst Carsten Fritsch.

The heads of the world’s largest trading houses predicted tepid oil demand recovery and flat prices in the coming months and possibly even years.

Meanwhile, all eyes were on the first US presidential election debate, at which Democrat Joe Biden and Republican Donald Trump will square off, later on Tuesday (0100 GMT on Wednesday).

Hopes of a new economic stimulus programme in the United States lent some support to prices as Democratic lawmakers unveiled a $2.2 trillion coronavirus relief bill, which House of Representatives speaker Nancy Pelosi saying it was a compromise measure.

G20 energy ministers emphasised the importance of stimulus packages in a joint statement on Tuesday.

Investors will also look for signs of growth in US demand from the American Petroleum Institute data on Tuesday and from the Energy Information Administration on Wednesday.

The average US crude oil inventory estimate from five analysts polled by Reuters was that US stocks rose by 1.4 million barrels in the week to September 25.

They expect gasoline stockpiles to have fallen by 1.6 million barrels and distillate inventories, which include diesel and jet fuel, to have declined by 800,000 barrels.

Clashes between Armenia and Azerbaijan over the Nagorno-Karabakh region have also kept markets on edge. If the conflict escalates, it could affect oil and gas exports from Azerbaijan.

“Disruptions to output and exports do not seem imminent. Nevertheless, the conflict has raised the geopolitical risk temperature,” said oil broker PVM’s Tamas Varga.

In a clear sign of weak demand in Japan, the world’s fourth-biggest crude buyer, official data showed the country’s August oil imports fell more than 25% from a year earlier.