Oil slid to a two-week low as conflicting signals over the prospect of U.S. fiscal relief added to concerns over a recovery in consumption.

Futures in New York tumbled 3.7 per cent on Thursday as the dollar bounced off session lows. U.S. benchmark futures settled below its key 100-day moving average for the first time since June, signaling further selling pressure ahead.

Chances for a much needed boost in demand remains uncertain, with talks Thursday between U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin yielding no immediate breakthrough on a deal for fiscal relief. At the same time, coronavirus flareups are causing renewed concerns over more lockdown measures, with New York reporting its most virus cases since May, a key public health official in London saying the city is at a “tipping point” and Madrid already adding more restrictions on movement.

“The idea of more lockdowns worrying traders and investors, the stimulus in question and the aspect of the technicals too,” are weighing on prices, said Josh Graves, senior market strategist at RJ O’Brien & Associates LLC. “Everything stems back to COVID.”

After posting a nearly 6 per cent decline in September, oil is off to a rocky start this month with the combination of weak demand and signs of increased supply from key global producers weighing on markets, including the unexpected return of Libyan output. Saudi Arabia’s crude exports jumped by half-a-million barrels a day in September and Russia’s exports are also expected to increase.

Still, the Organization of Petroleum Exporting Countries’ crude production held steady last month as the United Arab Emirates trimmed output in order to better comply with limits set by the cartel.

“It does seem that optimism around stimulus is drying up,” said Bob Yawger, head of the futures division at Mizuho Securities. With top traders flagging a difficult demand outlook, refining margins trading below US$10 a barrel and OPEC overproducing, “who would want to own the market?”

The emerging supply concerns come at a bad time for the oil market, which is facing new demand worries amid flareups in the coronavirus outbreak around the world. In the U.K., car usage slumped last week amid new virus restrictions. Meanwhile, Europe’s oil refineries are struggling to cope with a diesel glut, limiting their prospects for extra crude buying.

“The move is both fundamental and flow driven and the recent uptick in virus outbreaks has certainly put the already fragile demand recovery back in question,” said Ryan Fitzmaurice, commodities strategist at Rabobank.

Prices

West Texas Intermediate for November delivery slid US$2.11 to US$38.11 a barrel at 12:17 p.m. in New York

Brent for December settlement declined US$1.91 to US$40.39 a barrel, after earlier dipping below the key US$40 a barrel level for the first time in two weeks.
Timespreads also continue to point to a troubling picture. WTI’s prompt spread -- the difference in price of the nearest-dated contracts -- fell further into contango on Thursday, signaling concerns of oversupply.

Other oil-market news

Exxon Mobil Corp. gave a glimpse Thursday of its third-quarter financial performance that includes a worsening picture at its oil-refining business and further losses for the energy giant’s upstream unit.

Four Singapore-based crude oil traders from BP Plc left the company after the conclusion of internal investigations into their involvement in several disputed deals, said people with knowledge of the situation.

Colonial Pipeline says shippers should expect volumes of RBOB to fluctuate more than usual next year because of new EPA regulations requiring “protective handling.”

--With assistance from Elizabeth Low.