Oil Futures at 5-Month Lows on Lockdowns, Volatility Climbs

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange were down 2% or more to fresh five-month lows early Monday on worry over lost demand during the fourth quarter with the re-imposition of lockdown measures in several Eurozone countries, including France and Germany, as coronavirus infections increase, and ahead of presidential elections in the United States, with reports indicating the race is tightening.

U.S. President Donald Trump made gains in several polls over the weekend during the final days of the presidential election, with the president blitzing battleground states ahead of Tuesday's election. As of Saturday, 90 million voters cast ballots, which compares with a total 136 million votes in the 2016 presidential election.

Delays in the count are widely expected, adding to uncertainty on when the presidential election will be decided. True, too, for several Senate races that are considered tight and could take days after Tuesday to decide their elections and who holds control of the upper chamber and potentially longer if there are runoff elections.

The likelihood of not knowing the winner of the presidential contest on Tuesday between candidates with vastly different views on governing will continue to heighten volatility. The Chicago Board of Exchange's crude oil volatility index at just under 69 is at the highest points since early June.

Amid a spike in coronavirus cases in the European Union, France imposed a strict national lockdown on Friday, limiting mobility to those going to work if they can't work from home, to buy essential goods, or for medical assistance. Schools remain open. Germany's lockdown took effect earlier Monday, which is not as stringent as France's.

The renewed lockdowns have caused traders to reassess their oil demand expectations lower for the remainder of 2020, with Reuters reporting traders are considering storing diesel fuel in offshore vessels for as long as six months. Low freight rates and an increase in newly built very large crude carriers have increased the attractiveness of this expensive storage option.

The lockdowns muffled bullish data released from the eurozone and Asia showing manufacturing activity continued to expand in October. Eurozone's manufacturing purchasing managers' index was a better than expected 1.1 points to 54.8 in October, with Germany's manufacturing sector driving the improvement, with the index in Europe's largest economy surging a more-than-expected 1.8 points to 58.2. France's manufacturing PMI edged up to 51.3.

Expansion in China's manufacturing sector accelerated in October based on the Caixin Manufacturing PMI, with the reading up from 53 in September to a more-than-expected 53.6 last month. In India, manufacturing PMI surged 2.1 points to 58.9.

Manufacturing data in the United States due out later Monday morning is expected to show the sector continued on a growth trajectory, with consensus calling for a 0.2-point increase in manufacturing PMI to 53.3 reading, with the Institute of Supply Management's manufacturing index seen advancing from 55.4 to 55.7.

A stronger U.S. dollar is another headwind for oil prices, with the index trading near its 100-day moving average at 94.315 early session, a better-than one-month high. The stronger U.S. dollar index comes ahead of this week's monetary policy meeting by the Federal Open Market Committee meeting Wednesday and Thursday.

Additional federal stimulus is unlikely until 2021 however, according to U.S. Senator Majority Leader Mitch McConnell late last week, while U.S. House Speaker Nancy Pelosi sees a deal this year referencing a lame duck session.

Brian L. Milne can be reached at brian.milne@dtn.com

Liubov Georges