Oil prices face significant downside risk if a second wave materializes in the United States where a new series of lockdowns could seriously harm demand for fuels.
Oil prices hit a four-month high on Thursday, pushed higher by supply restrictions and a global rebound in demand. However, the accelerating spread of the coronavirus across the United States represents a major red flag, threatening another downturn. Experts had long warned that a second wave might be possible, but the sudden spike of cases across much of the US has caught many state governments off guard. Cases in Texas, Arizona and Florida are nearing “apocalyptic” levels, an infectious disease specialist at Baylor told CNN. The US is breaking new records, with daily cases now routinely topping 50,000.
It’s really shocking for the market to see US reported infections hitting new highs by the day. News that Thursday was a day of yet another record sobered up the market today and led prices a bit lower, erasing some of the week’s earlier gains,” Rystad Energy’s oil market analyst, Louise Dickson, said in a statement. “If this trend continues, oil demand in the region is at risk.”
Dickson added: “It seems that only new enforced restrictions can restrict the spread of the virus currently in the US and if lockdowns are applied again nationwide the second wave will hit the country’s oil demand hard.”