Oil prices gained nearly 3 percent on Monday, paring earlier losses, on the eve of what is almost certain to be a contentious presidential election in the United States and as major economies in Europe go back into lockdown in an effort to stem rising coronavirus infections.
Global benchmark Brent crude for January delivery rose $1.03 or 2.7 percent to settle at $38.97 a barrel on Monday, while US benchmark West Texas Intermediate (WTI) crude for December delivery rose $1.02 or nearly 3 percent to settle at $36.81 a barrel.
Both contracts fell earlier in the session after a sharp selloff last week when Brent fell 12 percent to below $38 a barrel – exiting its five-month trading range.
But reports that Russia is considering delaying its planned loosening of the taps in January helped lift prices later in the session on Monday.
The Organization of Petroleum Exporting Countries and its allies including Russia, a grouping known as OPEC+, have cut output by about 7.7 million bpd to prop up sliding oil prices.
Goldman analysts forecast a delay in plans to ramp up output in January. The next OPEC+ meeting kicks off on November 30.
Oil markets have been under pressure in recent days as business and travel-sapping lockdowns return to Germany, France, Italy and the United Kingdom. Also adding pressure on prices, Libya substantially upped its oil production in recent days.
“With plenty to worry about in the oil market – lockdowns, Libya, Iran, shale resilience – such a move lower is not surprising,” Goldman Sachs crude analysts wrote in a Sunday note. “This is consistent with our ‘patient bulls’ view that the second stage of the market rebalancing – the ‘cyclical recovery’ – would take time [and] require patience.”
A Rystad Energy analysis expects Libya’s crude oil output to average approximately 750,000 bpd in November and climb to 1 million bpd in February 2021
Healthy readings on global factory activity also helped buoy oil prices on Monday.
Japan’s export orders saw a boost and China’s factory activity rose to its highest level in nearly 10 years in October. In the US, the ISM manufacturing index also increased more than expected in October with spikes in production, new orders, and employment components.
Oil markets are also awaiting the outcome of the US presidential election.
“OPEC+ is sort of waiting for a signal from the US election,” Louise Dickson, an oil analyst with Rystad Energy, tells Al Jazeera. “The OPEC+ coalition has had an unprecedented and direct line to President [Donald] Trump which has provided a security blanket in terms of cutting global production and maybe getting something in return.”
Another possible demand hit from surging COVID-19 infections paired with uncertainty around OPEC+’s pathway to 2021 and the US elections means could spell volatility ahead.
“I think in terms of oil prices it’s going to be a bumpy road in 2021 regardless of who assumes office,” said Dickson.
A possible victory by Trump’s challenger, Democratic presidential nominee Joe Biden, could also lead to more oil flowing into a market where demand has been crushed by the pandemic.
Biden has indicated he wants to return to the Iran nuclear deal, a move that would give Iran the green light to export more oil.
Dickson also points to a possible smoothing of relations with Venezuela.
“Between Venezuela and Iran, if Biden pursues more of a carrot than a stick policy – that could mean another 2 million barrels per day,” said Dickson.
But Dickson sees forces at play that could also boost demand, should Biden win the White House, including better trade relations with China and emerging markets, loosening of trade policies in general, an uptick in the exchange of goods and a spike in demand for maritime bunker fuel.
Biden, who has pledged to promote a clean energy economy by investing $1.7 trillion over 10 years, is also likely to deliver a bigger fiscal stimulus package. The expected $2 trillion would inject life into the stagnating economy, boosting domestic oil demand by 300,000 bpd, according to Rystad Energy.
“Through Biden has risky potential supply policies, we see more demand with him,” Dickson told Al Jazeera.