Oil dropped as U.S. equities slid to a two-month low on mounting concerns over prolonged coronavirus restrictions while Libya signaled the resumption of some crude exports.

Crude futures in New York fell as much as 6 per cent to below US$39 a barrel. At the same time, the S&P 500 slumped to the lowest intraday level since July. Libya is moving closer to reopening its battered oil industry after it told companies to resume production at some fields that are free of foreign mercenaries and fighters. This will add to already rising supply from OPEC+ nations.

Libya is coming “closer to getting some of those supplies back on the market, and when they are finally able to, it will ramp up rather quickly,” said John Kilduff, a partner at Again Capital LLC. Meanwhile, the decline in equities is contributing to “another risk-off day.”

U.S. benchmark crude prices jumped 10 per cent last week after a show of determination by Saudi Arabia, the most influential member of the Organization of Petroleum Exporting Countries, to defend the market. But a troubling demand picture continues to weigh on prices, with China National Petroleum Corp. -- the country’s biggest oil company -- seeing demand for refined petroleum products peaking around 2025 as electric vehicles and alternative fuels sap consumption. That comes after BP Plc last week became the first supermajor to call the end of the era of oil-demand growth.

Meanwhile, the U.S. Gulf Coast is preparing for another storm, with companies shutting production or evacuating staff at some platforms and the Houston Ship Channel closing due to Tropical Storm Beta. The storm has unleashed flooding on southeastern Texas and will hammer the Gulf Coast into eastern Louisiana with heavy rain, even as the storm loses power on its approach to shore.

As U.S. deaths related to COVID-19 approached 200,000, former Food and Drug Administration Commissioner Scott Gottlieb said he expects the nation to experience “at least one more cycle” of the virus in the fall and winter.

“There are legitimate demand concerns,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “If we go into another lockdown, we are going to see inventories build.”

Prices

• West Texas Intermediate for October fell US$1.98 to US$39.13 a barrel as of 12:26 p.m. in New York
• Brent for November dropped US$1.81 to US$41.34 a barrel

Libya’s National Oil Corp. is ending force majeure -- a legal status protecting a party that can’t fulfill a contract for reasons beyond its control -- at “secure” facilities in the conflict-ridden nation and has told companies to resume production. The country’s overall oil production is set to reach 310,000 barrels a day in a few days from the current 90,000 a day, according to a person with direct knowledge of the situation.

Output will probably increase to 550,000 barrels a day by the end of 2020 and to almost 1 million by the middle of next year, according to forecasts from Goldman Sachs Group Inc. Production, which was 1.1 million at the end of last year, slumped after Khalifa Haftar, a Russian-backed commander who controls eastern Libya, blockaded energy infrastructure.