The blockage in Europe and uncertainty over the US elections could mean that volatility in the oil market could be on the horizon.
Oil prices surged nearly 3 percent on Monday, offsetting previous losses ahead of a controversial US presidential election, and as major European economies return to isolation in an attempt to stem the rise in coronavirus infections.
World benchmark Brent crude for January delivery rose $ 1.03, or 2.7 percent, to $ 38.97 a barrel on Monday, while US benchmark West Texas Intermediate (WTI) crude for delivery in December rose by $ 1.02, or nearly 3 percent, to $ 36.81 a barrel.
Both contracts fell earlier in the session after a sharp sell-off last week, when the price of Brent crude fell 12 percent to below $ 38 a barrel, exceeding a five-month trading range.
However, reports that Russia is considering postponing a planned relaxation of restrictions in January helped push prices up later in the Monday session.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC +, have cut production by about 7.7 million barrels per day to support sliding oil prices.
Goldman analysts predict a postponement of plans to increase production in January. The next OPEC + meeting starts on November 30.
Oil markets have come under pressure in recent days as restrictions on business and leisure travel return in Germany, France, Italy and the United Kingdom. In addition, putting pressure on prices, Libya has significantly increased oil production in recent days.
“Given that the oil market has something to worry about – blockages, Libya, Iran, the stability of shale resources – such a decline is not surprising,” – Goldman Sachs analysts wrote in a Sunday note. “This is consistent with our patient bulls’ view that the second stage of market rebalancing – a cyclical recovery – will take time [and] patience.”
According to Rystad Energy’s analysis, crude oil production in Libya will average about 750,000 barrels per day in November and will rise to 1 million barrels per day in February 2021.
Strong numbers of global manufacturing activity also helped support oil prices on Monday.
Japan’s export orders rose, and in October, China’s manufacturing activity reached its highest level in nearly 10 years. In the US, the ISM manufacturing index also rose more-than-expected in October on spikes in production, new orders and employment components.
Oil markets are also awaiting the results of the US presidential election.
“OPEC + is kind of waiting for a signal from the US elections,” said Al-Jazeera Louise Dixon, oil analyst at Rystad Energy. “The OPEC + coalition had an unprecedented and direct line with President [Donald] Trump that provided a safety cover in terms of cutting global production and possibly getting something in return.”
Another possible blow to demand from a sharp increase in COVID-19 cases, coupled with uncertainty about the OPEC + path to 2021 and the US elections, means instability could be ahead.
“I think in terms of oil prices, the road will be bumpy in 2021, no matter who takes office,” Dixon said.
The eventual victory of Trump’s rival, Democratic presidential candidate Joe Biden, could also lead to more oil flow to a market that has been suppressed by the pandemic.
Biden made it clear that he wants to return to a nuclear deal with Iran, which will give Iran the green light to export oil.
Dixon also points to a possible smoothing out of relations with Venezuela.
“In relations between Venezuela and Iran, if Biden pursues more of a whip than a whip, that could mean another 2 million barrels a day,” Dixon said.
But Dixon sees forces at play that could also boost demand if Biden wins the White House, including improved trade relations with China and emerging markets, a loosening of trade policies in general, increased trade, and a surge in demand for shipping bunker fuel.
Biden, who has pledged to advance the clean energy economy by investing $ 1.7 trillion over 10 years, is also likely to provide a larger fiscal stimulus package. The expected $ 2 trillion will breathe life into the stagnant economy, boosting domestic oil demand by 300,000 barrels per day, according to Rystad Energy.
“Because Biden is pursuing a risky potential supply policy, we see more demand for him.”