Crude oil futures fall on concerns of OPEC+ quota cuts, European restrictions

Singapore — 0223 GMT: Crude oil futures fell during mid-morning Asian trade Oct. 20, extending overnight losses, as concerns over the easing of OPEC+ production cuts continued to weigh on markets reeling from a lack of demand.

At 10:23 am Singapore time (0223 GMT), ICE Brent December crude futures were down 33 cent/b (0.77%) from the Oct. 19 settle to $42.29/b, while the NYMEX November light sweet crude contract was down 35 cents/b (0.86%) at $40.48/b. Both international crude markets had fallen 0.72% and 0.12% to settle at $42.62/b and $40.83/b, respectively, on Oct. 19.

Oil prices fell despite reassurances by Saudi energy minister Prince Abdulaziz bin Salman during the Oct. 19 OPEC+ Joint Ministerial Monitoring Committee meeting that the committee was closely observing market trends, and hinted that it would not hesitate to call for further supply restraint if needed.

"We will do what is necessary in the interest of all," Prince Abdulaziz said before adding that "nobody in the market should be in any doubt as to our resolve and our intent."

However, with a resurgence in the coronavirus pandemic dampening the demand outlook for oil and the return of more Libyan barrels to the market, following the lifting of the force majeure on the country's largest Sharara oil field, the market had expected more definite statements over the status of the production quotas.

Under the current agreement, OPEC+ is scheduled to relax its current 7.7 million b/d production cut to 5.8 million b/d from January 2021 onwards, but market participants are concerned that this roll-back in production quotas may not proceed as planned.

ANZ analysts said in an Oct. 20 note: "Crude oil eased lower as the market contemplated the easing of production cuts from OPEC...a statement from the JMMC made no mention of changes to the deal."

The mood remained dour after Google data showed on Oct. 19 that amid a resurgence in coronavirus infections and renewed restrictions, economic mobility indicators in Europe's largest economies fell to six-week lows.

Based on activity at workplaces, retail and recreational sites, and transport hubs, mobility indexes in Germany, the UK, France, Italy and Spain were on average 20.1% lower than pre-pandemic levels in the week to Oct. 13. These mobility indexes are often used as a proxy for energy demand, and hence their decline may indicate that oil demand in the region is also declining.

Stephen Innes, chief market strategist at AXI, cautioned in an Oct. 20 note that this trend is likely to continue.

"Still, as the winter of discontent for the oil market sets in, more COVID-19 cases and restrictions will weigh on activity. Indeed, this could create a gloomier oil demand outlook, which increases the chances of more long-lasting damage," Innes said.