Dueling factors drive volatility; Zeta, COVID-19 roil oil prices
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Countervailing forces launched oil traders on a white-knuckle roller coaster ride to begin the week of Oct. 26.
Hurricane Zeta gained strength as it swept into the Gulf of Mexico, shutting in production while the Organization of the Petroleum Exporting Countries contemplated vacating a production increase planned for year end.
Those bullish developments were muted as a new storm of COVID-19 infections brewed in the United State and Europe, the U.S. presidential elections neared and Libyan oil production rocketed to 500,000 barrels per day as a truce quelled fighting within its borders.
With forward visibility up in the air, the storm of uncertainty gripped financial markets as well, as major stock indexes joined oil prices in a capitulation to the downside Oct. 28.
West Texas Intermediate and Brent crude prices fell by more than 5%, while the Dow Jones Industrial Average, NASDAQ and the S&P 500 closed down by more than 3%.
Gold and Silver were no safe haven, with gold falling 1.44% and silver down 3.92% in the wake of a stronger U.S. dollar index at mid-week. A strong dollar can put downward pressure on oil prices as well.
Alaska North Slope crude rose above $40 per barrel Oct. 27, up 50 cents to $40.19 - joining WTI Brent, and other major crude benchmarks from around the world in a recovery from recent price weakness.
In Oct. 28 trading however, WTI plunged 5.86% - down $2.32 to $37.25, while Brent lost 5.32% - down $2.19 to $39.01. ANS closed down 4% Oct. 28, falling $1.61 to $38.58.
GOM shut-ins spikeAs hurricane-spurred oil facility evacuations in the Gulf of Mexico began Oct. 27, oil prices began to move upward, but the price strength didn’t hold, even as shut-ins increased into the next day.
The U.S. Bureau of Safety and Environmental Enforcement estimated that approximately 66.6% of current oil production and 44.5% of natural gas production in the Gulf of Mexico had been shut-in as of the morning of Oct. 28.
Based on operator reports, BSEE estimated that personnel were evacuated from a total of 228 production platforms, 35.5% of the 643 manned platforms in the Gulf.
Six dynamically positioned rigs moved off location out of the hurricane’s projected path as a precaution, representing 37.5% of the 16 dynamically positioned rigs currently operating in the Gulf, BSEE said.
After the storm passes, facilities will be inspected, BSEE said, adding that production from undamaged facilities will be brought back online immediately, but facilities sustaining damage may take longer to bring back online.
Meanwhile OPEC+ continues to consider holding its current production levels into the new year, foregoing a scheduled increase in January.
Renewed coronavirus lockdowns could slow economic recovery and the return of oil demand to pre-pandemic levels, Mohammad Sanusi Barkindo, OPEC Secretary General said in remarks via videoconference to the14th EU-OPEC Energy Dialogue Oct. 27.
“Consequently, we must remain vigilant, and continue to seek a multilateral approach to addressing this pandemic,” he said.
In a commentary released Oct. 28, OPEC said its four-year-old Declaration of Cooperation with allied producers was instrumental in avoiding a catastrophe when Covid-19 hit.
In April, OPEC said, participants “agreed to the longest and deepest oil production adjustment in history,” at 9.7 million bpd, “five times more than the breakthrough production adjustments reached in December 2016.”
Without those measures, OPEC estimated that oversupply would have added a further 1.3 billion barrels to global crude oil stocks, driving available global crude oil storage capacity to top out in May.
“The medium- and long-term outlook is inexorably linked to current production adjustments,” OPEC said.
Libya targets 1 million bpdOn Oct. 23, Libya’s National Oil Corp. lifted force majeure on exports from the Es Sider and Ras Lanuf ports, saying it expected to reach production of 1 million bpd by late November - up from the current 500,000 bpd.
The renewed production in the country, which holds the largest reserves in Africa, is dependent on a UN-brokered cease fire that ended its civil war.
Analysts, including the International Energy Agency, previously had predicted Libyan production would rise to 700,000 bpd by year end.
However, a senior Libyan official said that the “fragile ceasefire” will only survive if rival foreign countries stop meddling in the conflict, the Financial Times reported Oct. 26.
Fathi Bashagha, interior minister in the UN-backed government in Tripoli, told FT that the biggest challenge would be foreign “interference,” or a lack of international support to help Libyans “implement the ceasefire”.
Even if foreign powers withdraw from Libya, it will face huge challenges after years of chaos and violence, with the country effectively divided between east and west.
- STEVE SUTHERLIN