Crude futures dive as England enters lockdown, pre-election jitters

Singapore — 0257 GMT: Crude oil futures fell during mid-morning Asian trade Nov. 2, as the announcement of a lockdown in England weighed on the demand outlook for the oil complex, and as the market exercised caution heading into the US election.

At 10.57 am Singapore time (0257 GMT), ICE Brent January crude futures were down $1.22/b (3.2%) from the Oct. 30 settle to $36.73/b, while the NYMEX December light sweet crude contract was down $1.28/b (3.6%) at $34.51/b.

January ICE Brent and December NYMEX crude futures had dived 9.82% and 10.19% in the week ended Oct. 30 to settle at $37.94/b and $35.79/b, respectively, as markets grappled with demand-side implications of a surge in coronavirus infections in the west and national lockdowns in Germany and France, with reports that Libyan oil output could reach 1 million b/d by mid-November also dampening sentiment.

The oil prices' downward trajectory continued into the Nov. 2 morning as markets priced in UK Prime Minister Boris Johnson's announcement that England will retreat into a national lockdown starting Nov. 5.

According to media reports, England's lockdown will entail the closure of pubs, restaurants and non-essential businesses, including fitness centers and hair salons, although schools, universities and playgrounds will remain open.

Warren Patterson, head of commodities strategy at ING, told S&P Global Platts Nov. 2: "France, Germany and the UK [England] are the three biggest oil consumers in the European Union, together accounting for close to 6 million b/d, or about 6% of global oil consumption. The tightened lockdown restrictions in these key markets are going to have a material impact on global oil demand."

Analysts also attributed the fall in crude prices to a risk-off tone amid the approaching US elections, with ANZ analysts saying in a Nov. 2 note: "The market is also cautious heading into the US presidential election. We expect a Biden victory to weigh on crude prices in the medium term."

Patterson concurred, saying that a Biden victory could indeed put more pressure on oil, as he said that, "Biden seems less hawkish on his view on Iran. If he lifts sanctions on Iran, we could see an additional 1.5 million-2 million b/d of supply eventually hitting the market."

Meanwhile, analysts remained adamant that given the bearish market fundamentals, an OPEC+ intervention is necessary to put a floor under oil prices.

Stephen Innes, chief market strategist at AXI, however, said in a Nov. 2 note: "Uncertainly around the end of the month OPEC meeting has the oil complex hedging that it might be too premature for OPEC+ to make adjustments at this stage...essentially, there is no budgetary incentive for either Russia or Saudi Arabia to cut production unless the oil price reaches mid-$20s/b."