Oil prices drop as new lockdowns hit economic outlook

Oil prices fell further on Monday after Brent crude last week took its steepest slide since April on mounting concerns new lockdowns to slow the spread of coronavirus will hit demand for fuels.

Brent, the international benchmark, dropped as much as 4.6 per cent to $35.74 a barrel on Monday, hitting the lowest level since May as economists downgraded their European growth forecasts in response to lockdowns throughout the eurozone. West Texas Intermediate, the US marker, was down as much as 6 per cent to $33.64.

The gloomy start to the week came after Boris Johnson, UK prime minister, announced on Saturday tight national restrictions in England just days after Germany and France enacted similar measures.

Traders and analysts are now racing to estimate the extent to which the new lockdowns will weigh on demand.

Opec, the oil producer group, was already forecasting global oil demand would fall 10 per cent this year to average 90m b/d, but was expecting it would recover to almost 95m b/d over the northern hemisphere winter.

Its forecast is now in doubt. Rystad Energy estimates that France and Germany — which together consume about 4m b/d in normal times — could cut consumption by an additional 1.7m b/d next month.

“The pressure that we are seeing on oil will be a real concern for Opec+, particularly with Brent now well below $40 a barrel,” said Warren Patterson, head of commodities strategy at ING.

“Another key uncertainty for the market is the US presidential election . . . and the consequences this could have on oil,” Mr Patterson added, pointing to the possibility of a Democratic administration under Joe Biden taking a less hawkish stance on Iran.

Elsewhere, stock markets across Asia received a boost from new signs that a recovery in China’s economy is gathering pace. The Caixin China General Manufacturing purchasing managers’ index climbed to 53.6 in October — its highest level since January 2011. Any reading over 50 for the private survey means activity is expanding.

“The post-coronavirus manufacturing recovery continued to pick up speed,” said Wang Zhe, senior economist at Caixin Insight Group.

Hong Kong’s Hang Seng index rose 0.9 per cent, while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks gained 0.4 per cent. Japan’s Topix index added 1.9 per cent and South Korea’s tech-heavy Kospi climbed 1.1 per cent.

Futures for Wall Street’s S&P 500 index were 0.1 per cent higher while those for London’s FTSE 100 fell 0.5 per cent. Low trading volumes during Asian hours can increase volatility in US and European stock futures.

The S&P 500 fell 5.6 per cent last week on concerns over the spread of Covid-19 and a hotly contested US presidential election.

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