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OIL FUTURES: RBOB, ULSD retreat as COVID-19 surge dims demand outlooks

Highlights

UK institutes new lockdown measures as COVID-19 cases surge

ICE ULSD cracks weakest since 2009

Libya output could hit 260,000 b/d in late September

New York — Refined product futures settled lower Sept. 22 as demand outlooks dimmed amid the prospect of renewed COVID-19 lockdowns.

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NYMEX October RBOB settled down 1.28 cents at $1.1643/gal while October ULSD moved 1.12 cents lower on the day to finish at $1.0961/gal.

Refined product prices came under pressure in early US trading following reports that UK leaders are instituting new lockdown measures from Sept. 24 in the face of a steep rise in the number of new coronavirus infections. The move could herald a return to global lockdowns as the risks of a second wave of infections grow with the onset of colder weather in the northern hemisphere.

"It is hard to be constructive about oil prices as governments for most European advanced economies appear ready to reinstate lockdown measures to prevent the spread of the coronavirus," OANDA senior market analyst Edward Moya said in a note. "If production continues to show signs of increasing while the virus weighs on the demand outlook, oil prices could be in trouble."

The US coronavirus death toll surpassed 200,000 on Sept. 22, according to Johns Hopkins University data.

US driving activity has already steadily declined since the middle of August, Apple Mobility data showed, a trend that even a partial lockdown would likely exacerbate. The index fell to an average of 134.9 in the week ended Sept. 18, a 10-week low and down from 137.4 the week prior.

Divergent crude and product prices weighed on crack spreads. November ICE RBOB crack versus Brent fell to $6.38/b, down 66 cents on the day, while prompt heating oil cracks against Brent were down 72 cents at $4.83/b - the weakest since July 2009.

Markets were also bracing for the possibility of Libyan crude returning to market in coming weeks.

Libya's state-owned National Oil Corp. expects its production to rise to 260,000 b/d during the week starting Sept. 27 following the lifting of force majeure and the end of an eight-month blockade on its oil infrastructure imposed by the self-styled Libyan National Army.

Regional price differentials moved slightly more bullish. Platts Es Sider FOB Libya was assessed at a $1.35/b discount to the Med Dtd strip, in from $1.45/ on Sept 18, while the Platts Azeri Light CIF Augusta premium to the BTC Dtd strip held flat from the session prior at 90 cents/b.

US offshore returns as Beta weakens

Offshore US Gulf of Mexico oil and gas production continued to recover Sept. 22 as Tropical Storm Beta weakened as it moved up the Texas coast, leaving the Gulf of Mexico free of major storm activity.

US Bureau of Safety and Environmental Enforcement data showed 131690 b/d of crude output remained offline as of midday Sept. 22, and 129.98 Mmcf/d of natural gas output, 7.12% and 4.8% of total Gulf output, respectively. That was down from more than 30% and 25% of oil and gas production offline Sept. 17, respectively.