Oil dropped below $38 a barrel as surging coronavirus cases and a tightly contested U.S. election sapped momentum from crude’s strong start to the week.
Futures in New York dropped as much as 3.8% alongside a selloff in equity markets, but remain on track for a weekly gain. Democrat Joe Biden appeared to be on the brink of victory in the U.S. presidential race, but he may have to deal with a split Congress. Meanwhile, rising coronavirus cases continued to drag on the demand outlook, with various U.S. states reporting their biggest single-day rises.
“Europe is closing things down, every day there’s a new country with some restrictions,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures. “The knee-jerk reaction to anymore shutdowns is negative, but people likely aren’t going to panic as much as they did last time.”
Crude has been whipsawed this week as growing expectations for OPEC+ to delay a planned output increase in January were offset by uncertainty from a closer-than-expected U.S. election and a persistent stream of virus-related headwinds. Meanwhile, the decision by Royal Dutch Shell Plc to shut its Convent refinery in south Louisiana as it continues to seek a buyer adds to a string of refinery closures in the wake of anemic demand.
“The outcome of the U.S. elections and volatility spurred by the yet-to-decided outcome is what is dominating risk assets, oil included,” said Harry Tchilinguirian, oil strategist at BNP Paribas SA. “The price-supportive fundamental developments, including U.S. crude stock draws and OPEC+ signalling a possible delay to the taper of their voluntary supply cuts, will reassert themselves once we move on from the election outcome results.”
Biden is nearing victory after taking the lead in Pennsylvania over President Donald Trump, in an election whose outcome has implications on various energy-related areas. Still, uncertainty lingers with Trump’s campaign promising legal challenges that could draw out results, though its lawsuits to challenge the count have gained little traction.
Meanwhile, as the market continues to wrestle with abundant stockpiles amid a pandemic-induced demand slump, the world’s largest independent provider of oil storage said it has no space for hire at key fuel trading locations. Royal Vopak NV’s total occupancy rate was the highest its been for any three-month period since the start of 2019.
“It’s the pandemic, not the U.S. elections, that matter for oil in the near-term,” JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a report.