Oil declines as virus fears fuel further economic uncertainty

Bloomberg

Oil falls in New York and the global benchmark Brent plummeted to the lowest level since June after President Donald Trump’s positive Covid-19 diagnosis combined with labour market weakness heightened concerns over an economic recovery.
US crude futures declined 4.3% and Brent slid below $40 a barrel in volatile trading. A top World Health Organisation (WHO) official said the outbreak in the White House constitutes a disease cluster and needs to be taken seriously. While Trump is experiencing mild symptoms, the diagnosis adds another degree of uncertainty to a market reeling from a resurgence of global pandemic from New York to London.
“President Trump’s diagnosis goes right to the idea that Covid-19 is back on the march,” said John Kilduff, a partner at Again Capital LLC. “It’s going to cause folks to hunker down again and be very circumspect about traveling. That’s a huge negative for petroleum demand.”
Crude is off to a rocky start in October following a September decline. Demand has been struggling to recover at a time when the Organisation of Petroleum Exporting Countries (Opec) and its allies are sending supply onto the market. Russia raised its crude and condensate production last month, while Saudi Arabia’s oil exports jumped to a four-month high in September.
Governments around the world are struggle to control the spread of the virus. In UK, Prime Minister Boris Johnson said he won’t hesitate to impose new restrictions as governments across Europe tighten measures. Paris may close restaurants again and additional restrictions on movement were imposed in Madrid.
There are “concerns about Covid causing a second wave of demand slowdown,” said Michael Lynch, president of Strategic Energy & Economic Research. US jobs data showed “we’re not out of the woods as it seemed maybe a month ago.”
Oil options markets have also turned more bearish. Trading of Brent put options, which help traders profit when prices slide, showed the highest volume since March, according to trade data compiled by Bloomberg.
Energy stocks were among the worst-performing in the S&P 500 Index this week. The industry is facing mass layoffs: Suncor Energy will trim 10% to 15% of its workforce in the next 18 months and Royal Dutch Shell Plc plans to cut as many as 9,000 jobs.
Meanwhile, White House economic adviser Larry Kudlow said that Treasury Secretary Steven Mnuchin expects to discuss a stimulus proposal with Pelosi. Lawmakers have remained at an impasse since August over another round of virus relief that could provide a much-needed boost to demand.
“It’s an ugly situation,” said Bob Yawger, head of the futures division at Mizuho Securities. “Trump testing positive for the virus is a slap in the face for all the people who thought that the Covid situation was going to be a thing of the past.”