Oil sunk to levels not seen since May as Europe faces further COVID-19 lockdown restrictions.
The global benchmark Brent futures (BZ=F) dropped as much as 5.6% on Thursday, falling below $37 (£28.16).
Germany and France, among the largest European economies, have tightened restrictions as governments in both countries attempt to stem the tide of rising case numbers.
Oil prices have been struggling in the face of looming lockdown measures for several months as less people travel and therefore use gasoline-fueled cars.
“From here, oil needs some good news in the form of a US stimulus breakthrough, or some verbal support from OPEC+ to stop the rot,” said Jeffrey Halley, senior market analyst at OANDA.
“The picture is clouded by the impending 2 million barrels per day production increases by OPEC+ scheduled for January. OPEC+ is likely though, to try and ride out the US Election storm, with only a fall by Brent crude through $35 a barrel likely to elicit an early response. For now, oil markets look like sells on rallies.”
Supply issues and natural disasters have also been weighing on prices, with the US EIA (Energy Information Administration) reporting the largest crude gain on record of 1.2Mb as production rose last week following Hurricane Delta.
UBS analysts say the “disruptions will continue to be a feature though as Hurricane Zeta has now shut in nearly half of the GoM [Gulf of Mexico] production.”
Libyan output is also gaining rapidly, leading the size of expected inventory declines in the fourth quarter to fall rapidly.
Yet, in the immediate term, the most significant impact on prices remains lockdowns in Europe.
“The risk is that the fiscal support runs out and new lockdowns and depressed demand due to the chronic impact of the pandemic on consumer and business sentiment means impairments are going to rise later in 2021,” said Neil Wilson, chief market analyst for Marketsdotcom.
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