Crude oil prices plummeted on Friday morning as the resurgence of COVID-19 picked up globally, especially in the world’s largest economy and consumer of crude oil (United States), dampened the optimism for strong demand in energy goods.

Brent crude futures lost 0.70% to trade at $42.84 a barrel at 4.30 am Nigerian local time, and the West Texas Intermediate also dropped 0.8%, to trade at $40.31 a barrel.

Quick fact: Both International benchmarks for crude oil gained more than 2% yesterday, triggered by positive macros coming from the U.S Job report and falling U.S. crude inventories. For the week, Brent crude is up 4.3% and WTI is up 5.6%.

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Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, explained in detail the lingering concerns about the world’s largest consumer of crude oil. He said:

“The demand concerns continue to linger amid a rise in gasoline stockpiles as the number of confirmed coronavirus cases in the US climbed to an all-time high of more than 50,000 on Thursday.

“And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as Covid-19 cases rise remains the primary thorn in the oil bulls’ side.

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“But worrisome for oil prices are the densely populated southern US states that have been ravaged by the virus and are among the US’s most weighty consumers of gasoline.

“With the latest state government health advisory imploring Sun Belt citizens to restrict movements coupled with the re-imposition of localised lockdowns, there is a detectible level of uncertainty in the oil market heading into what is traditionally one of the busiest driving weekend of the year, the July 4th celebration weekend.”

However, some oil traders and investors remain optimistic that the price of crude will maintain its bullish momentum in the midterm, as long as certain parameters are kept in place.

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“The market has become increasingly confident that easing restrictions on travel and business would boost demand for crude oil, but the pandemic’s progress threatens to derail this recovery,” ANZ Research said in a note.

“The recovery in gasoline demand will plateau until the U.S. economy improves,” it concluded.

The production output of the Organisation of Petroleum Exporting Countries (OPEC) member-countries has recorded its lowest level in nearly 30 years, due to production cuts after demand was heavily impacted by the COVID-19 pandemic. The last time oil production was cut to 22 million barrels a day was during the Gulf War in 1991. 

Last month, OPEC cut production to 22.69 million barrels per day, in an effort to strengthen global prices for the commodity which was struggling with weak demand during a global lockdown occasioned by the pandemic. 

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OPEC leader, Saudi Arabia, has been compliant in its production cuts through the month of June. Back home, Nigeria has promised to do its parts in implementing total compliance with the cuts. 

Production cuts from OPEC countries and other allies such as Russia (OPEC+) have helped to revive the price of Brent Crude to over $40 since May, compared to record lows in the month of April. 

While the Gulf nations have implemented further cuts, Nigeria, Angola and Iraq are still lagging in full compliance, meeting only 77%, 83%, and 70% (respectively) of their quotas. Saudi Arabia reduced production by 1.13 million barrels to 7.53 million a day in June. 

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Other members like Venezuela pumped only 340,000 barrels a day in June, even though they are exempted from cuts as the country is dealing with a series of issues from US sanctions to a severe economic recession. 

Meanwhile, Russia hit its target quota for the second month in a row as countries outside the OPEC also cut production due to falling demand impacted by the COVID-19 pandemic. 

Brent Crude prices gained on Thursday’s early trading session, reversing previous losses recorded at Asia’s trading session. This was propelled by a sharp drop in oil stockpiles outweighing concerns that a spike in U.S. coronavirus infections and revived lockdown measures in California could stall recovery in fuel demand. 

Brent crude (LCOc1) gained 0.57% to trade at $42.27 a barrel 10.37 am local time, after gaining 1.8% yesterday. 

Brent crude is the leading global benchmark for Atlantic basin crude oil. The international benchmark is used to set the price of crude oil of about two-thirds of the world’s traded crude oil including that of Nigeria. 

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Chief Global Market Strategist at AxiCorp, Stephen Innes, spoke about the ultimatum the Saudis are giving other producers towards stabilizing crude oil price. He explained that “The price falls were further compounded by warnings from Saudi Energy Minister Prince Abdulaziz who, in no uncertain term, issued a stern ultimatum to OPEC+ laggards to comply with the cartel’s recent production agreement or face a price war. The Kingdom is not going to do the bulk of the heavy lifting while other member states are not 100% compliant.” 

Jeffrey Halley of OANDO in a note to Reuters also explained that, “The drop in stockpiles, reports of oil moving out of floating storage, and strong manufacturing PMI data across the globe formed a constructive case for oil prices rising.” 

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“The overnight price action and EIA data have temporarily lifted the COVID-19 gloom that has capped oil prices all week,” he added.