Oil prices sank over 1% on Monday, erasing the positive sentiment that the market boasted last week after OPEC+ agreed on a plan for January production.
While OPEC+ agreed to add 500,000 barrels of oil production per day to its quota, it was less of an increase than its original plan had called for. The markets interpreted this as a positive sign, and, combined with positive developments with several covid-19 vaccines, oil prices rallied last week.
But reports of the increasing number of coronavirus cases is threatening to dampen the optimism that OPEC+ created, sending the price of Brent crude down 1.18% to $48.67. The price of a WTI barrel was off 1.32% on Monday, at $45.65.
The reality is that in the short term, the vaccine news—and OPEC+ developments—won’t have any effect on oil demand, which has plagued the oil market since even before the pandemic started. But certainly after the pandemic set in, particularly in the United States, the lockdowns tamped down activity, and with it, oil demand. And even the best vaccine news that could be hoped for will have only a muted effect on oil demand through at least the first half of next year.
The number of covid-related deaths in the United States has been on the rise over the last week, but perhaps what is moving the need are extended lockdowns and restrictions on activities in certain parts of the country.
Michigan’s Governor, Gretchen Whitmer, extended a series of restrictions that includes a ban on in-restaurant dining was extended today until December 20. California residents—or at least 85% of them—are under a strict stay-at-home order through Christmas. Ohio is extending its 10 p.m. curfew, which was set to expire this Thursday.
The extended restrictions are a clear sign that oil demand isn’t going to rebound just yet.