Oil Prices Drop Further On Uncertainty Over COVID-19

Oil prices decreased on Friday morning in Asia. It was because the most significant oil-producing members of OPEC and its allies vouched to fully commit to production cuts. WTI futures dropped by 0.41% to $41.78 and Brent crude oil futures decreased by 0.33% to $44.93.

According to the Iraqi state news agency, Iraq will fully commit to decreasing production under an earlier OPEC deal. Iraq expects to cut production by 1.06 million barrels. The market analysts are hoping that it will push the commodity prices up.

This week, Iraq also promised to make additional output cuts of around 400,000 barrels per day to compensate for its excess production over the past months, which violated the OPEC+ supply reduction deal.

The oil market still worried over the pandemic

The coronavirus pandemic keeps having an impact on fuel demand. It affects countries around the world contributing to the decrease in the supply of black gold.

According to the Institute for Health Metrics and Evaluation, the death rate in the US by the pandemic forecasted to reach 295,011. 

The coronavirus infections already exceeded 19 million globally. The death toll in the US is more than 160,000 at the moment. This data from John Hopkins University creates worries that radical lockdowns may be still imposed.

Vandana Hari, the founder of Vanda, stated that the pandemic won’t weaken, but it is not getting any better. In such a scenario, concerns over the crude oil demand recovery remain.

With the hindered demand, it is hard to get overly constructive towards the crude oil market, ING Economics stated in a note yesterday. 

Analysts doubt that the global oil demand will recover to pre-pandemic levels next year. The world’s largest oil companies are not confident either that the demand for the commodity will return to the pre-crisis levels. 

OPEC is quietly preparing to face weaker demand growth. 

Michael Lynch, an expert on petroleum economics and energy policy, states that low oil prices will support oil demand growth when the world puts the coronavirus pandemic behind it. 

Economic growth has always been a driver of crude oil demand. This time,  economies worldwide are not expected to return to growth until 2021. So, the second wave of the coronavirus does not further hit economies and employment rates in major oil-consuming nations.