Oil Prices Hit by Second COVID-19 Wave and Libyan Production

Oil prices have plummeted once again after a second COVID-19 wave and repercussions on the recovery of fuel demand are expected. Moreover, growing Libyan oil production adds more uncertainty to the international arena.

The Financial Post reported today that the "Brent mix was down US$0.34 or 0.8 percent at US$42.28 a barrel. The WTI mix, meanwhile, fell US$0.15 cents or 0.4 percent to US$40.68".

Reuters reported that over 40 million had contracted the SARS-CoV-2 virus by Monday, with a second wave hitting Europe and the US despite newly implemented lockdown measures. Other countries, such as China, have a stable oil demand. Nonetheless, prices are struggling as new cases appear in countries with high oil consumption.

In addition, a US stimulus package is in stand-still due to the rare possibility that an agreement will be reached and be approved after the elections. Nevertheless, House Speaker Nancy Pelosi declared on Sunday that progress is being made with the Treasury Secretary Steven Mnuchin regarding arrangements for a US stimulus package that could reduce the economic hardships brought by the pandemic’s second wave.

On Monday, during an OPEC meeting energy ministers from Russia and Saudi Arabia called for a proactive response to the resurgence of COVID-19 infections, which is expected to affect the recovery plan and prospects for reactivating the production that was halted in April. Previously, OPEC expected to ease the cuts of nearly 8MMb/d at the start of next year but now, this scenario seems unlikely.

OPEC is also facing supply problems due to an increase in Libyan oil production. Currently, Sharara, the country’s largest field, is producing 500Mb/d, while due to national instability, Libyan production is generally irregular and reaches only 200Mb/d.

There is no doubt the oil industry is facing an uncertain future. Other factors that have recently impacted the oil industry are US President Donald Trump’s COVID-19 recovery and a workers’ strike in Norway.  

On Monday, the OPEC committee reaffirmed its commitment to achieve full adherence from all participating countries in the compensation plans that are presented until December 2020. During the meeting, all countries were encouraged to increase their efforts to fight against an overproduction of oil to rebalance the market and avoid any obstacle that could slow down its recovery.