Crude futures dive on demand-side worries amid US election uncertainty

Singapore — 0308 GMT: Crude oil futures dived during midmorning Asia trading Nov. 5 as the demand-side gloom brought about by the pandemic festered in the markets gripped by uncertainty about the US elections.

At 11.08 am Singapore time (0308 GMT), ICE January Brent crude futures was down 60 cents/b (1.46%) from the Nov. 4 settle at $40.63/b while the NYMEX December light sweet crude contract was also down 60 cents/b (1.53%) at $38.55/b.

ICE January Brent and NYMEX December crude futures had surged 3.83% and 3.96% to settle at $41.23/b and $39.15/b, respectively, on Nov. 4 as the market received a boost from indications that the OPEC+ alliance may maintain or deepen its current production cuts instead of easing them as scheduled from 2021 onward.

However, on Nov. 5, the pernicious demand-side impacts of the coronavirus pandemic came back into the spotlight as England joined France and Germany in a lockdown, and fundamentals in downstream oil markets deteriorated.

"Weakening demand in Europe weighed on sentiment. Road usage is suffering as France, Italy, Spain and [England] have reinstated lockdowns. The average highway use [in these countries] has fallen to its lowest level since late June, which doesn't bode well for gasoline demand," said ANZ analysts in a Nov. 5 note.

Downstream US oil markets were faring no better, with Nov. 4 data from the Energy Information Associations showing a 1.54 million-barrel build in US gasoline inventories at 227.67 million barrels in the week ended Oct. 30. In contrast, analysts surveyed by S&P Global Platts had expected a 1.1 million barrel draw in US gasoline inventories.

The EIA data was not all bearish, as it also showed that US crude inventories had plummeted 8 million barrels in the week ended Oct. 30. While this draw propped up oil prices toward the close on Nov. 4, it was largely ignored by Asia.

The Asian market's indifference could have stemmed from the dramatic fall in crude stocks being underscored by the effects of Hurricane Zeta, which at its peak had shuttered 84.8%, or about 1.57 million b/d of crude capacity in the US Gulf Coast, and from the notion that demand outlook in the coronavirus-stricken global markets is still bleak.

"The Asian market is still focused on the implications of surge in coronavirus infections in Europe and the US, and is bearish in view of the European lockdowns," Victor Shum, vice president at IHS Energy Insight, told Platts on Nov. 5.

Meanwhile, the US elections continued to grab headlines this morning, with some analysts saying that a Biden presidency may put pressure on the oil complex due to his greener approach toward climate policy and his less hawkish view on Iranian sanctions. Other analysts though said a Biden administration may bode well for oil prices, at least in the near term, by offering more support for stimulus spending.

"The election is still undecided, and so it is too early to make a definitive assessment over how a Biden presidency will impact the market, and definitely too early to price it in," Shum added.