WASHINGTON (DTN) -- Following Monday's steep losses, nearby delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged higher in early trade Tuesday, supported by accelerated production shut-ins in the U.S. Gulf of Mexico ahead of Tropical Storm Zeta, while rising cases of coronavirus infections and tightening quarantine restrictions in several global economies weigh on the demand outlook.
In early activity, December West Texas Intermediate futures were trading on either side of $39 per barrel (bbl) after falling more than $1 prior session, and December Brent crude on ICE traded just below $41 bbl, with January Brent at a roughly $0.40 premium ahead of the December contract's expiration Friday. NYMEX November ULSD futures moved 1.95 cents higher to near $1.1415 gallon, with December ULSD at a 0.55 cents premium ahead of the November contract's expiration Friday afternoon. November RBOB futures added 1.55 cents to trade near $1.1270 gallon with December futures at a 1.45 cents discount to the expiring contract.
Offshore producers in the U.S. Gulf of Mexico on Monday shut-in as much as 16% or 293,656 barrels per day (bpd) in oil production and some 6% or 162.57 MMcf/d of natural gas output, according to the Bureau of Safety and Environmental Enforcement. British Petroleum, Chevron and Equinor among others announced this week they began evacuating staff and shut-in production platforms ahead of Tropical Storm Zeta forecasted to make landfall along the Louisiana coastline Wednesday night as a Category 1 hurricane.
In addition to weather risk, traders are also monitoring a record surge in coronavirus cases across the United States and the European Union, with overnight reports indicating Germany is now likely to go into partial lockdown by the end of the week.
German Chancellor Angela Merkel is reportedly considering "a light touch lockdown" for the Eurozone's largest economy that would shutter restaurants and hospitality facilities but keep some stores and schools open through the end of the year. Earlier this week, Czech Republic, Germany's neighbor, announced closure of national borders and all nonessential businesses and travel, plunging the country in what technically looks like a total nationwide lockdown from eight months ago.
The latest wave of infections in the Western Hemisphere will delay a recovery in oil demand following the spring shock through widespread lockdowns, which was already lackluster. Mohammed Barkindo, Secretary General of the Organization of the Petroleum Exporting Countries, on Monday said a global demand recovery will take longer than previously expected and will remain hobbled until the arrival of a vaccine.
Barkindo was the latest OPEC+ official suggesting the producer group would delay implementing the next phase of their production arrangement which would increase OPEC+ output 2 million bpd effective Jan. 1, 2021. Russian President Vladimir Putin had also said Moscow was open to considering a delay in the agreement should market conditions worsen. OPEC+ meet Nov. 30 and Dec. 1.
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